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: Are training benefits received from a training trust fund taxable under paragraph 6(1)(a)?
Position: Question of Fact
Reasons: Benefits would be considered to be received by virtue of employment, therefore must apply the guidelines developped in Technical News #13. If the training falls into category 1 or 2 it will be considered non-taxable. Category 3 training will be considered taxable. Each case must be examined.
Department of Finance
Tax Policy Branch
140 O’Connor Street 5-990027
L’Esplanade Laurier Karen Power, CA
Ottawa, ON K1A 0G5 (613) 957-8953
Attention: Elisha Ram
January 19, 1999
Dear Mr. Ram:
Re: Training Trust Funds
We are writting in reply to your correspondence of January 4, 1999, concerning the taxation of benefits paid out of Training Trust Funds. Specifically, you are concerned with whether or not recipients of these benefits would be required to include the amount as a taxable benefit pursuant to paragraph 6(1)(a) of the Income Tax Act (the “Act”).
The facts as we understand them is as follows:
1) A Training Trust Fund (“TTF”) is a collectively bargained multi-employer benefit. The purpose of training trusts is as its name implies, to train employees in the Industry - new workers, existing workers, and recently unemployed - for their future employment.
2) The objectives of TTF’s include:
- occupational training courses for both members of the union and other members of the public,
- skills upgrading to meet technological and other changes,
- rehabilitation of injured workers, and
- the ultimate objective is to train persons so that they will be in a better position to obtain or retain employment, as the case may be, and thereby meet the demands of employers.
3) Contributions to TTFs are normally made by participating employers, pursuant to a collective agreement, on a cents per employee hour worked or earned by each bargaining unit employee, or a percentage or wages.
4) The following is a summary of the types of Industry training:
- on-the-job-training of apprentices and other new-entrants;
- apprenticeship in school;
- skills upgrading due to technological change;
- rehabilitation of injured workers;
- upgrading of language and numeracy skills;
- supervisory training;
- computer training;
- health and safety.
Paragraph 248(1)(d) of the definition of “employee benefit plan” in the Act specifically excludes an arrangement the sole purpose of which is to provide education or training for employees of the employer to improve their work or work related skill and abilities. As such, benefits paid out of the TTF would not be considered taxable under 6(1)(g) of the Act.
In our view, as no particular employee derives a benefit at the time of an employer’s contribution to a TTF, no taxable benefit accrues to an employee at the time of the contribution. However, at the time that the TTF makes payments to individuals, these payments are made by virtue of the individual’s employment and may be considered taxable under paragraph 6(1)(a) of the Act.
Each payment must be examined on a case by case basis to determine whether an individual will receive a taxable benefit pursuant to paragraph 6(1)(a) of the Act. The Department released Technical News #13 on May 7, 1998, which provides new guidelines that assist in the determination of whether employer-paid educational costs are to be considered a taxable benefit under paragraph 6(1)(a) of the Act. The new guidelines are effective as of May 7, 1998 and will apply to all future assessments and reassessments in an arm’s length employee-employer relationship. In our view, these guidelines should be applied to payments made from the TTF.
The new guidelines consider three broad categories of training. Only training and educational costs which fall within the third category will be considered of primary benefit to the employee and thus remain taxable. All other training which falls into the first or second category will generally be considered to primarily benefit the employer and, therefore, be non-taxable.
Courses which are taken for maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the course. Whether or not the course leads to a degree, certificate or diploma, and when the course is taken will not affect the taxation of the training.
Other business-related courses, although not directly related to the employer’s business. Examples of this category would include stress or time management, employment equity, first-aid and language skills.
Category 3: Personal Interest Training - Taxable
Employer-paid courses for personal interest or technical skills that are not related to the employer’s business; for example, fees paid for a self-interest carpentry course.
In our view, the training provided under a TTF will generally fall within the non-taxable categories 1 & 2 of Technical News #13. However each case should be examined to ensure that the training provided does not fall within category 3 as that training would be considered taxable pursuant to paragraph 6(1)(a) of the Act.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
.../cont'd
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