25 March 1997 External T.I. 9702585 - TAXABILITY OF COURSE COSTS PAID UNDER EI ACT

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:

whether tuition tax credit and/or education tax credit is available to students who have received amounts directly from HRDC which are "designed to facilitate the entry or re-entry of workers into the labour force" and where these amounts are not required to be included in income because of the carve out provisions in 56(1)(a)(iv).

Position:

tuition tax credit available only for that portion of fees for which the claimant has not been reimbursed or otherwise assisted under the EI Act (or other program of Her Majesty in right of Canada, or of a prvince, which is designed to facilitate the entry or re-entry of the individual into the labour force and which is also not included in income). Fees paid must otherwise qualify for the credit and the remainder portion must be more than $100. No education tax credit because the def'n of "qualifying educational program" excludes any program in which the student receives "from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement for expenes in respect of the program..."

Reasons:

Human Resources Development
Canada
Program Development 970258
Policy and Design Division Sandra Short
Place du Portage
Phase IV
Hull, Quebec
K1A 0J9

Attention: Bob Thomas

March 25, 1997

Dear Sirs:

Re: Taxability of Course Costs paid under the Employment Insurance Act

This is in reply to your letter of January 23, 1997, concerning course costs paid directly to clients under the Employment Insurance Act (EI Act).

In the past, Human Resources Development Canada (HRDC) has paid for a course or program, designed to facilitate the re-entry of a claimant into the labour force, directly to the institution providing the course or program, to a province when the course or program was given by a public authority of the province, or to a third party who provided the course or program. Such payments are not required to be included in a claimant's income because of the exemption found in subparagraph 56(1)(a)(iv) of the Income Tax Act.

HRDC has started to pay course or program assistance directly to qualified claimants, as is also permitted under the EI Act. The amount paid to claimants may not always be the full amount of course costs (only 90% of course costs is covered in some situations). HRDC does not report these amounts as income to the claimants because of the exemption found in subparagraph 56(1)(a)(iv) of the Act. You have asked whether the claimants are entitled to a tuition tax credit or education tax credit.

Our Comments:

We agree that, to the extent that amounts paid under the EI Act do relate to the cost of a course or program which is designed to facilitate the re-entry of the claimant into the labour force, such amounts are not income to the claimant for income tax purposes.

A tuition tax credit is available to the claimant for only that portion of the tuition fees for which the claimant has not been reimbursed or otherwise assisted under the EI Act, or other program of Her Majesty in right of Canada, or of a province, which is designed to facilitate the entry or re-entry of the individual into the labour force (and which is also not included in income). The fees paid must otherwise qualify for purposes of the tuition tax credit and the remainder portion must be more than $100.

The claimant is not entitled to an education tax credit because the definition of a "qualifying educational program" excludes any program in which the student receives "from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement for expenses in respect of the program...." There are some benefits or amounts which are statutorily carved out from this general exclusion provision but they are not applicable in this situation.

We believe that there are administrative concerns which must be addressed as a result of amounts being paid directly to a claimant and which do not trigger an income inclusion. These include difficulties in determining whether a client should be denied entitlement to a tuition tax credit or education tax credit as a result of having received these amounts. It is our understanding that you will be meeting soon with officials in the Individual Returns and Payments Processing Directorate of our Department to discuss administrative concerns relating to this matter.

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