Principal Issues: What are the tax implications to an employee receiving a one-time payment for professional development?
Position: Question of fact.
Reasons: If the amount is in respect of the cost of professional development that is primarily for the benefit of the employer then the amount should not be taxable. If the amount is paid as an allowance with no requirement that any professional development be undertaken then the amount would be taxable.
XXXXXXXXXX 2008-029532 Michael Cooke November 17, 2008
Dear XXXXXXXXXX :
Re: Employee Professional Development
This is in reply to your correspondence dated October 3, 2008, concerning the taxability under the Income Tax Act (the "Act") of payments made to employees for professional development.
Specifically, the XXXXXXXXXX (the "Employer") has received a one-time grant allocation from the XXXXXXXXXX to be used to enhance professional development and training. It is anticipated that the Employer will pay each employee an amount of approximately $XXXXXXXXXX (the "Payment") on or before XXXXXXXXXX . You indicated to us (Cooke/XXXXXXXXXX ) that the Payment is required to be used by the employee for professional development; however, no receipts will be requested by the Employer in order for its employees to be eligible to receive a Payment.
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 an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
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 18 of Interpretation Bulletin IT-470R (Consolidated), "Employees' Fringe Benefits" describes the Canada Revenue Agency's ("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, generally, 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 Payment represents a reimbursement of actual costs 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 under paragraph 6(1)(a) of the Act. However, 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 and subject to regular payroll withholdings.
We trust our comments will be of assistance.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch