Principal Issues:
What is the tax treatment of training payments or reimbursements where the employer pays or reimburses training costs to employees who have applied to use all or part of their lump-sum performance bonus for this purpose?
Position:
Any amount of bonus paid to an employee must be included in computing the employee's income in the year the bonus is paid to the employee by virtue of subsection 5(1).
Reasons:
Where an employee renounces an amount to which the employee is or will be entitled, such as a bonus paid or to be paid in the course of employment, by converting it into a non-taxable tuition payment or reimbursement, the employee must include the amount of remuneration so converted in computing the employee’s income for the year in which the conversion takes place.
XXXXXXXXXX 2008-030004 I. Landry, M. Fisc. June 10, 2009
Dear Sir,
Subject: Payment or reimbursement of training costs
This is in response to your letter of November 5, 2008, in which you asked our opinion on the tax treatment of payments or reimbursements of training expenses in cases where the employer pays or reimburses training expenses to employees who have requested that their lump-sum performance bonus be used, in whole or in part, for this purpose.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
More specifically, in your request for interpretation, you described a situation where an employer received an additional budget envelope from a Ministry, identified as a lump-sum performance bonus, so that the Ministry had the means to promote and recognize its management staff.
Although the envelope came from a Ministry, eligibility for the lump-sum performance bonus was established by the employer through an evaluation process based on principles of transparency, fairness and rigour.
On the other hand, the Ministry granting this envelope provided, in one of its policies, that an employee may ask his or her employer to use his or her lump sum performance bonus in whole or in part for skills development.
The situation you have indicated in your letter appears to be related to an actual situation, which concerns specific taxpayers. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the practice of this Directorate to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should forward all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which we hope you will find helpful.
Generally, any amount of bonus paid to an employee must be included in computing the employee's income in the year in which the bonus is paid by virtue of subsection 5(1).
We are of the view that where an employee renounces an amount to which the employee is or will be entitled, such as a bonus paid or to be paid in the course of the employee’s employment, by converting it into a non-taxable tuition payment or reimbursement, the employee must include the amount of remuneration so converted in computing his income for the year in which the conversion takes place. The fact that the funds for the bonus come from a Ministry of the government does not affect the nature of the payment made to employees.
Best regards,
Louise J. Roy, CGA
Manager
for the interim Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.