11 March 1999 Internal T.I. 9903137 - EMPLOYER PAID UNIVERSITY

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: employer agrees to pay student's cost of degree/diploma in return for student working holidays and after graduation.

Position: employment benefit but not taxable if meet technical news 13

Reasons: Paid per employment agreement

		March 11, 1999

	Winnipeg Tax Services Office	HEADQUARTERS
D. Duff
	Attention: Dian Versluis	957-8953
		990313

Employees attending University at commencement of employment

This is in reply to your e-mail of February 8, 1999, regarding the situation where an employer hires high school graduates and agrees to pay for the cost of the employee’s education to obtain a degree or diploma. In return, the student agrees to work for the employer during the summer and for a certain time after graduation. If the student does not complete the courses or does not fulfill the work requirements, there are provisions for repaying the employer for some or all of these benefits. You were inquiring about the income tax treatment of such payments from the employer, especially the amount paid in the first year of school where the student did not work for the employer before attending school.

Our comments

In determining the amount of income from an office or employment, paragraph 6(1)(a) of the Income Tax Act (the “Act”) requires the inclusion of the value of any kind of benefits received or enjoyed “... in respect of, in the course of, or by virtue of an office or employment...” and subsection 6(3) requires, inter alia, the inclusion of amounts paid immediately before the period of employment which were paid to enter into the contract.

While it is always a question of fact depending on the particular circumstances, in our view, the amounts paid by the employer in the above situation would be employment benefits and not a scholarship or bursary. The student enters into an employment agreement with the employer and the agreement requires the student to take certain programs in college or university, and most likely requires the student to be successful in those programs. The agreement also requires the student to work directly for the employer during the summer and for a period after successfully completing the programs. Employment is defined in subsection 248(1) of the Act to mean “... the position of an individual in the service of some other person...”. In our view, employment would generally commence at the time the student starts performing duties required under the employment agreement. If he or she does not work the first summer, this would occur when classes commence in September. Any taxable benefits would be included in employment income pursuant to either section 6 or subsection 6(3) of the Act. The latter provision would apply, for instance, where the employer pays the tuition and other costs for the school year in advance of the student starting classes in September.

Generally, this would be our position whether or not the student works for the employer during the summer before, or at any time before, the first school year. Since the amounts would be paid under the same or similar employment contracts, the benefits should be taxed in the same manner.

You also asked about the situation where the student started school in September, without having worked for the employer and without having entered into an employment contract. This situation would not likely occur as an employer would not be willing to pay for a student’s education in these circumstances without having some kind of agreement that the student will work for the employer in the future.

We should also point out that Technical News No. 13, issued on May 7, 1998, provides new guidelines to determine when employer provided training is considered a taxable benefit. The newsletter states that “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 courses, will generally be considered to primarily benefit the employer and therefore be non-taxable. For example, fees and other associated costs such as meals, travel and accommodation which are paid for courses leading to a degree, diploma or certificate in a field related to the employee’s current or potential future responsibilities in the employer’s business will not result in a taxable benefit.” In our view, since these employees are being trained for specific jobs in the employer’s organization, the benefits resulting from this arrangement would not be considered taxable.

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

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