2 July 1998 External T.I. 9816435 - EMPLOYER-PAID TRAINING

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: Questions concerning Technical News #13 "Employer-Paid Educational Costs"

Position: General comments made.

Reasons: New guidelines on taxation of employer-paid educational costs issued May 7, 1998 and effective for 1997 and future taxation years.

Policy and Systems
Financial and Administrative Services
Human Resources Development Canada 5-981643
140 Promenade du Portage Karen Power, CA
Place du Portage, Phase IV (613) 957-8953
Hull, Quebec
K1A 0J9

Attention: Mr. Claude Headley

July 2, 1998

Dear Sir/Madam:

Re: Taxable Benefit / Training

We are writing in reply to your memorandum of June 17, 1998 concerning the taxation of employer-paid training.

You have asked for guidance and assistance on how Human Resources Development Canada (HRDC) should proceed in addressing employee concerns related to the Department’s new guidelines on the taxation of employer-paid educational costs.

Our Comments

On May 7, 1998 the Department announced new guidelines that assist in the determination of whether or not employer-paid educational costs are to be considered a taxable benefit. 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. This means that these guidelines will generally apply to:

(i) all assessments and reassessments of the 1997 and subsequent taxation years, and

(ii) all future reassessments resulting from an objection or appeal, or from a waiver filed prior to the date of this release.

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.

Category 1: Specific Employer-Related Training - 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.

Category 2: General Employment-Related Training - Non-Taxable

Other business-related courses, although not directly related to the employer’s business. Example 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.

It is the employer’s responsibility to determine whether the reimbursed educational costs should be treated as non-taxable. The new guidelines will apply to individuals who received a taxable benefit in 1997, to determine whether the training is still considered taxable. If you determine, that the course falls within the Specific Employer-Related Training or General Employment-Related Training categories, you should prepare amended T4 Supplementary Slips and an amended T4 Summary form to reduce the employment income in Box 14 and the amount reported as a taxable benefit in Box 40. Include a footnote on the T4 Supplementary slip indicating that a tuition benefit has been deleted. Forward copies to the Department and forward a copy of the T4 Supplementary slip to any affected employee advising them to request an adjustment of their T1 return. Also provide the employee with a letter outlining the benefit that is deleted and the educational institutions to which they pertain.

For 1998 and future taxation years, once HRDC determines that the employer-paid training is considered non-taxable under the new guidelines, no reporting of these costs will be required. Relevant documentation which has helped in the determination that the employer-paid training is non-taxable should be kept.

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

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