16 October 1998 Internal T.I. 9808367 - TAXATION OF TRAINING COSTS

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:

1. Is the training assistance provided under part II of the EI Act taxable?

2. Can the students claim the tuition credit?

3. Can the students claim the education tax credit?

4. Should the educational institution issue a T2200 even when the fees have been paid by someone other than the student?

Position:

1. Yes
2. Yes
3. No
4. Yes

Reasons:

1. Taxable under 56(1)(r) of the Act.

2. Because the training assistance has been included in income, the subparagraph 118.5(1)(a)(v) would not apply to deny the credit.

3. The definition of "qualifying educational program" in subsection 118.6(1) excludes a program where the student receives, from an arm's length person, any allowance, benefit, grant or reimbursement for expenses in respect of the program.

4. When tuition fees are paid on behalf of a student, Form T2200 or T2202A should be issued to students who are enrolled in a qualifying program, whether or not it is actually the student who paid the tuition.

		October 16, 1998

	Winnipeg, TSO	HEADQUARTERS
	Dian Versluis	Karen Power, CA
	Technical Advisor	(613) 957-8953
	Revenue Collections
		7-980836

Taxation of Training Costs

We are writing in reply to your letter of March 26, 1998, concerning the taxation of various training benefits/allowances provided to clients by XXXXXXXXXX We will forward our reply with respect to XXXXXXXXXX under separate cover.

You have provided us with the following information:

XXXXXXXXXX

All of the training dollars awarded by HRDC to XXXXXXXXXX to cover the costs of training assistance was funded under Part II of the Employment Insurance (“EI”) Act. The coordinating group agreement between XXXXXXXXXX and HRDC expired on XXXXXXXXXX. Any individuals still undergoing training at that time, continued to be funded by the province of Manitoba’s Department of Education and Training. The province of Manitoba administers the training assistance under a labour market agreement with HRDC. Once again, the funding for the training assistance is provided for under Part II of the EI Act.

You have asked the following questions relating to the above situation:

1. What amounts should be included in income?

2. Are the students eligible for the tuition credit pursuant to section 118.5 of the Income Tax Act (the “Act”)?

3. Are the students eligible for the education tax credit pursuant to section 118.6 of the Act?

4. Does the educational institution issue the student a T2200 or T2202A for the amounts paid on the student’s behalf when the tuition fees are not paid directly by the student?

Our Comments

Question #1

In our view, all payments received by individuals in the above situation, whether paid by XXXXXXXXXX or the province of Manitoba, would be taxable under paragraph 56(1)(r) of the Income Tax Act (the “Act”). This paragraph was included in Bill C-28, which received Royal Assent on June 18th, 1998. This amendment is retroactive to June 30, 1996, the date of coming into force of the EI Act and Revenue Canada will apply the amendment beginning with the 1997 tax year.

Paragraph 56(1)(r) of the Act subjects to tax various training-related amounts. Specifically, this paragraph includes in a taxpayer’s income financial assistance received under Part II of the Employment Insurance Act, as well as similar financial assistance received from a government or government agency under the terms of an agreement with the Canada Employment Insurance Commission. As a result, recipients of financial assistance under Part II EI programs will be taxed regardless of whether the payments have been made directly by the federal government, a province or an organization under a devolution agreement.

Question #2

Under subparagraph 118.5(1)(a)(iii.1) of the Act, an individual may be prevented from claiming a tuition tax credit for tuition fees in respect of which the individual was entitled to receive a reimbursement or any form of assistance under a program of Her Majesty in right of Canada or a province designed to facilitate the entry or re-entry of workers into the labour force. However, this is not the case if the reimbursement or assistance is included in the individual’s income.

In our view, provided all of the other requirements of section 118.5 have been met, an individual receiving training assistance which is taxable under paragraph 56(1)(r) of the Act would be entitled to claim the tuition credit.

Question #3

In order for students to claim the education credit under subsection 118.6(2) of the Act, they must be enrolled in a "qualifying education program" as defined in subsection 118.6(1) of the Act. In general, the credit is not available to a student who receives any allowance, benefit, grant or reimbursement for expenses (other than as a scholarship, fellowship or bursary, prize for achievement in a field of endeavour ordinarily carried on by the student or loan granted in accordance with the Canada Student Loans Act or ddddd of the Province of Quebec) from a person with whom the student is dealing at arms length.

In our view, the training assistance received by the individuals described above, under Part II of the EI Act will normally be considered allowances or benefits for the purposes of section 118.6 of the Act and the recipients would not be eligible for the education tax credit.

Question #4

When tuition fees are paid on behalf of a student, Form T2200 or T2202A should be issued to students who are enrolled in a qualifying program, whether or not it is actually the student who paid the tuition.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch