Principal Issues: Whether an annual amount provided by an employer to an employee for expenses related to professional development is taxable.
Position: It is a question of fact.
Reasons: If the payment is made regardless of whether any professional development costs will be incurred by the employee or if such professional development is primarily for the benefit of the employee then the payment would be taxable. If the payment represents a reimbursement of actual costs or an accountable advance in respect of expenses incurred by an employee for professional development that was undertaken primarily for the benefit of the employer then the payment would not be taxable to the employee.
XXXXXXXXXX 2010-037143 Rita Ferguson 519-645-5261 September 9, 2010
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Professional Development Payments - Payroll
This is in response to your email of June 17, 2010 inquiring about the taxability under the Income Tax Act (the "Act") of payments to employees for professional development.
It is anticipated that the XXXXXXXXXX (the "Employer") will pay each teacher (the "Employee") a pre-determined amount (the "Payment") one time each year for the next three years. You have indicated that the Payment is required to be used by the Employee for conferences, courses and resource materials, however, no receipts will be requested by the Employer.
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.
Paragraph 6(1)(a) of the Act provides that there shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. Paragraph 6(1)(b) includes in income all amounts received in the year as allowances for personal or living expenses, or as an allowance for any other purpose, subject to certain stated exceptions, none of which apply here.
Paragraph 18 of Interpretation Bulletin IT-470R (Consolidated), "Employees' Fringe Benefits" describes the CRA's position on the tax implications of employer-paid education costs. A taxable benefit generally arises when the training is primarily for the benefit of the employee. However, when training is taken primarily for the benefit of the employer, there is no taxable benefit whether or not this training leads to a degree, diploma or certificate.
Accordingly, if the Employee will not be required to account for the Payment, or if the Payment will cover professional development or other expenses that are incurred primarily for the benefit of the Employee then the Payment will be taxable as employment income. However, if the Payment represents a reimbursement of actual costs or an accountable advance in respect of expenses incurred by the Employee for professional development that was undertaken primarily for the benefit of the Employer then the Payment would not be taxable to the Employee.
We trust that these comments have been of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch