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.
Principal Issues: (1) Whether a book allowance paid to an employee is a taxable benefit. (2) If the book allowance is a taxable benefit can a claim for a deduction under section 8 of the Income Tax Act
Position: (1) If it is unaccountable, Yes (2) No
Reasons: It is the law.
XXXXXXXXXX
2011-039547
Linda Compton
(613)957-2135
April 4, 2011
Dear XXXXXXXXXX :
Re: Interpretation Request - Book Allowances
This is in response to your e-mail of January 18 2011 inquiring about the taxation of book allowances paid to XXXXXXXXXX .
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.
Comments
Although your email describes the amounts paid as "book allowances" it is important to note that for purposes of taxing income from office or employment, the concept of an "allowance" has a specific meaning. Specifically, for purposes of this discussion, an allowance is:
1) an arbitrary amount in that it is a predetermined sum set without specific reference to any actual expense or cost, even though the amount of the allowance may be set through a process of projected or average expenses or costs;
2) usually for a specific purpose; and
3) usable at the discretion of the recipient in that the recipient need not account for the expenditure of the funds towards an actual expense or cost.
A true "allowance" differs from what we refer to as an "accountable advance," which involves a payment from an employer to an employee for expenses to be incurred by the employee and to be accounted for subsequently by the production of vouchers and the return of any amount not so spent.
Pursuant to paragraph 6(1)(b) of the Income Tax Act (the "Act") employees are required to include in employment income all amounts received in the year as an allowance for any purpose, except where it has been specifically excluded under the provisions of the Act. As there is no exception in paragraph 6(1)(b) of the Act for allowances paid for books or training materials, an employee is required to include a book allowance in employment income.
Notwithstanding the foregoing, we note that depending upon how the program is structured, it is possible for an employer to fund employee training on a non-taxable basis. Interpretation Bulletin IT-470R, Employees' Fringe Benefits provides general guidelines with respect to employer-paid education or training. Where training is undertaken that primarily benefits the employer, there is no taxable benefit. Where the training is primarily for the benefit of the employee there is a taxable benefit and the amounts paid by the employer for the training are required to be included in the employee's income from employment.
An allowance for training or resource materials, as an unaccountable payment of cash, would be taxable as discussed above. However, if an employer were to provide an employee with an accountable advance (as described above), or a simple reimbursement for the cost of training materials that would provide job skills of primary benefit to the employer, then the payment would be non-taxable under the policy pertaining to employer-paid training costs.
You have also asked whether employees could deduct the cost of books they purchase. Subsection 8(2) of the Act provides that no deductions are allowed in computing a taxpayer's income for a taxation year from an office or employment except as specifically enumerated in section 8 of the Act. There are no provisions under section 8 of the Act that allow for an employee to deduct the cost of books or similar training or reference materials.
We trust that our comments are of assistance to you.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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