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: Whether an individual can choose to include in income the amount of tuition that has been paid for, or reimbursed by, their employer, but was considered not to be a taxable benefit, to allow for the amounts to be claimed for the tuition tax credit?
Reasons: Where the training is considered to be for the benefit of the employer, no taxable benefit is assessed to the employee, and it is a non-taxable amount to the employee.
Author: Wirag, Eric
Section: 118.5(1)(a)(iii); 6(1)(a); 56(1)(n)
August 28, 2014
Legislative Policy Directorate HEADQUARTERS
Legislative Amendments Division Income Tax Rulings
Provincial Legislative Amendments Section Directorate
20th floor, 320 Queen Street Business and Employment
Ottawa ON K1A 0L5 Division
E. Wirag, CPA, CMA
Attention: Ron Kerr (613) 957-2090
TUITION TAX CREDIT
This is in response to your email of May 1, 2014, in which you ask whether the tuition tax credit can be claimed under paragraph 118.5(1)(a) of the Income Tax Act (the “Act”) when the tuition has been paid for, or reimbursed by the individual’s employer. In this situation, you state that the tuition paid was not a taxable benefit to the individual. The individual wishes to claim the tuition tax credit to be eligible for a provincial incentive. This incentive will provide the individual with a reimbursement of a portion of the tuition fees that were paid by the employer. You ask whether the individual can choose to include in income the amount of tuition that was paid for by the employer to allow for the amounts to be claimed for the tuition tax credit, even though it is not a taxable benefit to the individual.
Where tuition fees are paid on behalf of, or reimbursed to an individual by his or her employer and the amount is not included in the individual’s income, subparagraph 118.5(1)(a)(iii) of the Act does not allow the amount to be claimed for the tuition tax credit. If the amount is a taxable benefit to the individual, and therefore included in the individual’s income, the restriction under subparagraph 118.5(1)(a)(iii) does not apply, and the tuition tax credit may be claimed.
Whether the amount is taxable as income from office or employment under paragraph 5(1) of the Act or as a benefit in respect of, in the course of, or by virtue of the taxpayer’s office or employment under subparagraph 6(1)(a) of the Act in any particular situation depends on whether the primary beneficiary of the training or educational program is the employer or the employee. If the course or program is determined to be primarily for the benefit of the employer, the employee will not be considered to have received a taxable benefit and the amount is not included in the employment income of the individual. Therefore, the tuition tax credit would not be available to the individual by virtue of subparagraph 118.5(1)(a)(iii) of the Act.
However, if the course or program is determined to be primarily for the benefit of the employee, the amount is considered a taxable benefit to the employee, and the amount is included in employment income of the individual. As long as the amount is not otherwise deductible from income, and the requirements of section 118.5 are met, the tuition tax credit would be available. Amounts received by an individual as or on account of a scholarship, fellowship or bursary, or a prize for achievement are included in income under paragraph 56(1)(n) of the Act, except to the extent that the amounts are received in respect of, in the course of or by virtue of an office or employment. Therefore, an amount for tuition reimbursed or paid to an individual by virtue of employment cannot be included in income under paragraph 56(1)(n).
In the Department of Finance technical notes, it states that subparagraph 118.5(1)(a)(iii) provides that an amount paid on behalf of an individual by the individual’s employer is not eligible for the tuition tax credit unless the amount is required to be included in computing the individual’s income. Although the term “required” is not included in the actual provision within the Act, the technical notes indicate the intention that the amount is required to be included in income.
Additionally, subject to certain exceptions, subsection 150(1) of the Act requires taxpayers to file a return of income in prescribed form containing prescribed information. Prescribed information means the information that is required to be included on the form. The T1 Return requires taxpayers to include in income only amounts that are included in income under the Act. Therefore, a taxpayer may not include in income tuition which has been paid for, or reimbursed by an employer unless it is an employment benefit or otherwise included in income under the Act.
In the situation you have described, it is our view that if the amount is not included in employment income of the individual, it would not qualify for the tuition tax credit.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: LPRA-PLAR ITR-DDI Access Team-Équipe d'Accès. In such cases, a copy will be sent to you for delivery to the taxpayer.
We trust our comments will be of assistance.
Pamela Burnley, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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