2014-0563251E5 Employer paid course - requirement of employment

Principal Issues: Is an employer paid course a taxable benefit to an employee?

Position: Question of fact.

Reasons: See response.

Author: Waugh, Phyllis
Section: 6(1)(a)

XXXXXXXXXX
                                                                                                                                                2014-056325
                                                                                                                                                P. Waugh

February 2, 2015

Dear XXXXXXXXXX:

Re:  Employer required course – taxable benefit

We are writing in response to your letter dated November 27, 2014, concerning whether the reimbursement received for a course would be subject to income tax under the Income Tax Act (Act).

In the situation you described, your former employer (Company A) required you to attend a course as a condition of employment.  You registered and paid for the course, to be held in the future, and you were subsequently reimbursed by Company A.  Prior to attending the course, you terminated your employment with Company A and began employment with Company B.  Company A required you to repay the reimbursement received since the course would not be attended while you were employed by Company A.  Company B required you to attend the same course as a condition of employment.  Since Company B would pay for this course, it was agreed that Company B would reimburse Company A for the course.  Company B decided to reimburse you directly and have you repay Company A. 

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Generally, paragraph 6(1)(a) of the Act provides that all benefits received or enjoyed by an employee from an office or employment are taxable unless specifically excluded by another provision of the Act.

Where an employer pays, in full or in part, for the cost of a course for its employees, the employees would generally be considered to have received an economic benefit in respect of, in the course of, or by virtue of their office or employment.  This economic benefit would be taxable under paragraph 6(1)(a) of the Act unless it could be demonstrated that the employer was the primary beneficiary of the course and the employer and employee dealt at arm’s length, or the benefit was excluded by another provision of the Act.  If the employer is considered the primary beneficiary, the employee will not be considered to have received a taxable benefit, the amount is not included in the employment income of the employee, and the tuition tax credit would not be available to the employee by virtue of subparagraph 118.5(1)(a)(iii) of the Act. 

The Canada Revenue Agency generally considers that courses taken to maintain or upgrade employment-related skills (including courses required to fulfill a condition of employment) are for the primary benefit of an employer, provided that the employee is expected to resume his or her employment for a reasonable period of time after completion of the training. 

A determination of who is the primary beneficiary of a benefit (e.g., a course) is a question of fact that must be determined on a case-by-case basis.  An employer is generally in the best position to make this determination. 

In considering whether a taxable benefit has been received under paragraph 6(1)(a) of the Act, it does not matter if the benefit was received directly (e.g., the employer reimburses the employee for the cost of the course) or indirectly (e.g., the employer pays the educational organization directly for the employee to participate in the course). 

For additional guidelines on the taxation of employer-paid courses, see Chapter 3 of Guide T4130, Employers’ Guide - Taxable Benefits and Allowances, or go to www.cra.gc.ca/payroll and select the topic “Education related benefits.”

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate

cc:  Hanna Barysenka, Taxpayer Services Directorate

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015