26 September 1996 Income Tax Severed Letter 9622655 - Professional development expenses

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

PRINCIPAL ISSUES:

deductibility of training or professional development expenses incurred by professional employees (faculty members at a college)

POSITION:

Section 8 does not permit the ded'n of training or professional development expenses (would require a legislative amendment); however, training expenses may qualify for the tuition tax credit.

REASONS:

Professional development generally a personal expense. No deduction for expenses incurred in connection with research or professional development carried on by a faculty member in the ordinary course of employment duties.

962265 XXXXXXXXXX D. Zion

Attention: XXXXXXXXXX

September 26, 1996

Dear XXXXXXXXXX

Re: Professional Development Expenses

This is in reply to your correspondence regarding professional development expenses which was forwarded to us from XXXXXXXXXX Tax Services Office. You have requested clarification regarding the application of the employment benefit rules as well as the tax treatment of certain expenses incurred by your instructors for approved professional development training under a number of different circumstances. We apologize for the delay in responding.

XXXXXXXXXX It is recognized that faculty members should have an opportunity to participate in, and pursue, professional development activities in order to maintain excellence of instruction and educational service at XXXXXXXXXX You have described the provisions with which you are concerned, and at our request, have provided excerpts from one of the collective agreements for review.

Our Comments

When a member of the faculty of a university or college is subject to a contract of employment under which he or she receives a salary, such a salary is considered to be income from employment under the provisions of subsection 5(1) of the Income Tax Act. If an employee is required to pay for travel, meals and accommodation, the payments become deductible not because a collective agreement so stipulates, but rather because they meet the criteria for deductibility set out in the relevant provision of the Act. The types of deductions an employee is entitled to claim against employment income are limited to those provided under section 8 of the Act and does not include expenses incurred in connection with research or professional development carried on by a faculty member in the ordinary course of his or her employment duties.

On the other hand, a faculty member may undertake a research project in respect of which he or she may be entitled to receive a grant. If the research project is not connected to or part of the normal employment duties of the faculty member, the research grant is required to be included in income under the provisions of paragraph 56(1)(o) of the Act. In computing the amount to be included, the researcher is entitled to deduct those expenses incurred for the purpose of carrying out the research project (up to the amount of the grant itself), except those expenses that are personal in nature, reimbursed to the researcher, or otherwise deductible by the researcher. We emphasize that this research does not include any research carried out by the faculty member as part of his or her normal employment duties or under the terms and conditions of the employment contract since, as previously noted, this compensation is considered salary and included in income under subsection 5(1) of the Act. We have enclosed Interpretation Bulletin IT-75R3, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, and direct you to paragraphs 20 to 23 which discuss research grants in further detail.

Consistent with our previous comments, the Department's primary objective when reviewing amounts received by a faculty member is to ensure they are accurately characterized as either income from employment or a research grant. Assuming that the amount received is in fact income from employment, it is our view that the expenses incurred by faculty members, with respect to their professional development are personal in nature. Thus, they are not entitled to deduct the expenses of travel, meals, accommodation, supplies, etc. while away from their normal place of business. Professional development is primarily the responsibility of, and for the benefit of, the employee even though the employer obviously also benefits during the employee's period of employment with that employer. Accordingly, a T2200 should not be prepared with respect to a faculty member under the conditions with which you have outlined to us.

Faculty members are also entitled to reimbursements from XXXXXXXXXX of amounts they paid for professional development activities up to an annual maximum. These are intended to cover general travel expenses, payment of membership fees in professional or learned societies, and professional development activities. XXXXXXXXXX will also pay the expenses for one faculty member in each discipline, where provincially-approved articulation meetings are held, to attend one such meeting per year.

Generally, pursuant to paragraph 6(1)(a) of the Act, the value of benefits received in respect of, in the course of, or by virtue of an office or employment are included as income unless specifically excepted. When an employee maintains membership in a particular organization because of a legal requirement or because of a job requirement, such as a specification contained in a classification standard or in a job description, the reimbursement of reasonable membership fees by the employer would not be considered to be a taxable benefit to the employee. Paragraph 8(1)(i) of the Act provides that an individual may deduct in computing income from employment for the year annual professional membership dues, the payment of which was necessary to maintain a professional status recognized by statute. However, any faculty member in receipt of a reimbursement of professional membership dues would not be entitled to a deduction for such dues in computing income by virtue of the exclusion set out within paragraph 8(1)(i) of the Act.

Should course fees or tuition be reimbursed, it is a question of fact as to whether the employer or employee is the primary beneficiary of the course taken. When the courses are taken primarily to obtain a particular degree or certification, whether undergraduate or post graduate, it is the Department's position that the reimbursement or payment of the corresponding tuition fees is taxable because the degree or certificate is primarily for the employee's benefit and not the employer's. It is possible that certain training at a university or other educational institutions may be of primary benefit to the employer rather than to the employee. For example, when an employee working in a particular occupation is required to take additional courses to enhance the skills and knowledge required by that employer in order to more effectively perform the duties of employment of that particular occupation, the payment of the tuition fee by the employer will generally not be considered a taxable benefit to the employee provided that it can be shown that the training was provided at the employer's initiative and for the employer's purposes. However, it is also the Department's view that courses taken to improve an employee's chances of promotion, for professional development, or to prepare for alternate job opportunities are considered to be taken primarily for the benefit of the employee, even though the employer may also derive some secondary benefit.

When the payment of course or tuition fees is determined to be primarily for the faculty member's benefit, the whole amount of the reimbursement must be included in income. We would mention, however, that the employee will be entitled to a tuition tax credit for fees paid by the employer if the tuition otherwise qualifies. This tax credit will offset, to some extent, the additional tax payable as a result of the income inclusion. In addition, the faculty member would be eligible to claim that portion of the expenses incurred personally by the faculty member for professional development training that would qualify as tuition fees which were not reimbursed by XXXXXXXXXX An employee is not permitted to deduct the cost of attending a conference as this deduction is only permitted when a taxpayer is in receipt of business income and that the conference was held in connection with the business. Interpretation bulletin, IT-131R2, Convention Expenses, a copy of which is enclosed, sets out the Department's position regarding expenses of training and we would direct you to paragraphs 7 and 8 in this regard.

Should you require additional information with respect to a particular fact situation, please contact your local Tax Services Office.

We trust our comments will be of assistance to you.

Yours truly, John F. Oulton for Director Business and Publications Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch