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: Allowance to employees for cost of children's education
Position: Not exempt per 6(1)(b)(ix)
Reasons: Employees were not transferred as part of their job.
April 26, 1999
XXXXXXXXXX Tax Services Office HEADQUARTERS
D. Duff
Attention: XXXXXXXXXX 957-8953
Team Leader
Audit
990691
Application of subparagraph 6(1)(b)(ix)
This is in reply to your round trip memorandum of March 10, 1999, and further to the telephone conversation of April 14, 1999 (XXXXXXXXXX/Duff) regarding the application of subparagraph 6(1)(b)(ix) of the Act to the situation described therein.
Facts:
1. Employees of XXXXXXXXXX are given an allowance by their employer to assist their children attend school. The allowance is as follows:
Away from Home Living at Home
(i) High School..........................$XXXXXXXXXX $ XXXXXXXXXX
(ii) College & Technical School...... XXXXXXXXXX XXXXXXXXXX
(iii) University.......................... XXXXXXXXXX XXXXXXXXXX
Max. $XXXXXXXXXX /family/year; XXXXXXXXXX year limit per child.
2. To be eligible for the program, the student must be a full time employee's dependent child, in full time attendance with a full course load at a recognized educational institution and provide a letter of acceptance from the school registrar. The employee must have at least one year of service when applying for assistance under this program.
3. On XXXXXXXXXX sent a memorandum to its employees receiving assistance under this program informing them that as of XXXXXXXXXX, the benefits will be subject to tax. They also advised that these benefits would not be taxable if they met the criteria in subparagraph 6(1)(b)(ix) of the Act. According to the memorandum, the criteria to be met was as follows:
a) The scholarship must not be in excess of a reasonable amount.
b) The child who has received the scholarship must be living away from home.
c) The child must be attending school full-time.
d) The primary language of instruction at the school must be English or French.
e) The primary language of instruction at the school must be the employee's primary language.
f) There is no school suitable for the child, using the primary language of the employee, in the place where the employee lives.
g) The school attended must be in the nearest community having suitable boarding facilities and providing instruction in the primary language.
XXXXXXXXXX gave the employees the option of determining if they met this criteria and, if they did, they could sign a declaration to that effect and give it to XXXXXXXXXX.
4. The total of these payments is in the range of $XXXXXXXXXX to $XXXXXXXXXX with the majority of them being considered non-taxable.
5. XXXXXXXXXX.
6. The majority of the employees live in XXXXXXXXXX hired these employees from the local population and did not move any of them to the area.
7. XXXXXXXXXX.
You had the following questions.
1) What does school mean (primary, secondary, post-secondary, post-graduate)?
2) What does a school suitable for a child mean?
3) What is the intent of this provision?
4) Should these amounts be considered tax-exempt in these situations?
Subparagraph 6(1)(b)(ix) of the Act requires a taxpayer to include in income all amounts received in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except reasonable allowances received by an employee in respect of any child of the employee "living away from the employee's domestic establishment in the place where the employee is required by reason of the employee's employment to live and in full-time attendance at a school in which the language is the official language primarily used by the employee if
(A) a school suitable for that child primarily using that language of instruction is not available in the place where the employee is so required to live, and
(B) the school the child attends primarily uses that language for instruction and is not farther from that place than the community nearest to that place in which there is such a school having suitable boarding facilities;"
School is not defined in the Act so it can be an elementary, secondary, post secondary and post-graduate school. We have not defined the term, suitable school, for the purposes of this provision, however, we do not take the view that it means any school that a child chooses in order to take a specific course or program of study.
In our view, the provision was intended to apply to the situation where an employee, who uses an official language of Canada, was relocated by his or her employer to a location using the other official language or a foreign language. However, it could also apply in a situation where an employer moves an employee to an area that uses that employee's official language, but there are no suitable schools available for his or her children.
In our view the payments by XXXXXXXXXX to its employees do not meet the exemption in subparagraph 6(1)(b)(ix) of the Act and should be fully included in the employees' income. These employees are from the area and were not relocated there by XXXXXXXXXX, consequently they are not required to live there by reason of their employment. As indicated in the preceding paragraph, the provision is to exempt such an allowance where the employer has moved its employees to a location where a suitable school is not available to educate their children in the official language of Canada primarily used by the employees. It is not intended to provide a tax exempt subsidy for the education of the children of employees.
We have discussed this position with the Department of Finance and they are in agreement with it.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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