Principal Issues: [TaxInterpretations translation] Are amounts of financial assistance received from the employer for doctoral studies amounts received in respect of, in the course of or by virtue of an office or employment?
Should the part of this financial assistance that is related to the reimbursement of tuition fees be included in employment income?
Position: Yes.
No.
Reasons: Paragraph 7 of Interpretation Bulletin IT-75R. The contract granting the financial assistance was entered into while the Taxpayer was employed by the employer and is a contract under which the employer agrees to pay all or part of the employee's education-related expenses on the condition that the employee return to that employment after completing her studies.
The education expense guidelines found in Income Tax Technical News No. 13 and paragraph 18 of Interpretation Bulletin IT-470R apply to assessments and reassessments issued after May 7, 1998, which is the case here. The courses taken by the Taxpayer were in a field related to her responsibilities with the Employer. In addition, the Taxpayer was employed for a significant period of time after completing her courses.
February 28, 2005
Mr. Victor Girard Headquarters Chicoutimi Tax Services Office Sylvie Labarre, CA (613) 957-8953 Client Services 2004-010399
Tuition reimbursement
This is further to your memorandum of November 10, 2004 in which you requested our opinion on the tax treatment of tuition fees paid by the employer of XXXXXXXXXX (the "Taxpayer").
Facts
XXXXXXXXXX (the "Employer") recruited the Taxpayer to fill a faculty position in the Department of XXXXXXXXXX (the "Department"). In accordance with the recruitment policy, the Taxpayer undertook to pursue doctoral studies funded by the Employer in order to return to the Department as a professor. In this Department, a person without a doctorate cannot be a full-time professor and can only work as a lecturer.
According to the documents attached to your request, the Employer hired the Taxpayer in XXXXXXXXXX while she began her doctoral studies in XXXXXXXXXX. According to the Taxpayer, prior to her departure for her studies, she was a temporary lecturer and participated in the activities of the Department in addition to preparing to leave for studies.
The Employer has signed an agreement with the Taxpayer granting her, as referred to in Article XXXXXXXXXX of the Agreement, the financial assistance referred to in Articles XXXXXXXXXX of the Agreement.
Section XXXXXXXXXX of the agreement provides for an annual scholarship of US$XXXXXXXXXX plus the cost of attending an American university. This amount is distributed over the year so that the taxpayer receives an amount every two weeks.
Article XXXXXXXXXX of the Agreement provides that the Employer undertakes to reimburse the Taxpayer, upon presentation of supporting documents approved by the Employer, for the following expenses:
A) tuition fees payable annually to the university;
B) the cost of air travel (round trip), economy class, incurred by the Taxpayer and her spouse, once only for the entire duration of the project;
C) moving and storage costs of the Taxpayer's and her spouse's personal belongings up to a maximum of $XXXXXXXXXX, and this only once for the total duration of the project.
The financial assistance provided for in Articles XXXXXXXXXX of the Agreement is granted on the condition that the Taxpayer completes her doctoral studies project and holds a full-time faculty position with the Employer for a period at least equal to that for which she was granted financial assistance.
During the years XXXXXXXXXX, the Employer paid the tuition fees directly to the university attended by the Taxpayer.
From XXXXXXXXXX, the Taxpayer did not include the payment or reimbursement of tuition fees in computing her income. In XXXXXXXXXX, a notice of reassessment was issued for each of these XXXXXXXXXX years to add the amount of the reimbursed tuition fees to her income and to allow the tuition tax credit. The Taxpayer objected to these reassessments made on the basis that, inter alia, the tuition payments and the other portion of the financial assistance should be treated as employment income under subsection 5(1) of the Income Tax Act (the "Act") and under the terms of subsection 6(3). These objections appear to have been resolved in XXXXXXXXXX on the basis that the financial assistance received represented employment income.
In XXXXXXXXXX, the Taxpayer filed her tax returns including the amount of the tuition reimbursement as employment income.
The Taxpayer is requesting an adjustment to her income for the years XXXXXXXXXX inclusive to remove the amount of tuition reimbursement made by her Employer. She is making this request based on the Guidelines on education expenses paid by an employer that were published on May 7, 1998 in Income Tax Technical News No. 13.
Questions
You wish to know whether the tuition reimbursement is a scholarship within the meaning of paragraph 56(1)(n), as the agreement uses the term "scholarship" in some places.
You also wish to know whether the Guidelines for education expenses paid by an employer, set out in Income Tax Technical News No. 13, could be applied to tuition reimbursements received by the Taxpayer so that these reimbursements would not be included in her income.
Our Comments
Paragraph 7 of Interpretation Bulletin IT-75R reads as follows:
During or immediately after a period of employment, employees and employers sometimes make agreements under which the employer agrees to pay all or part of the employee's education costs on the condition that the employee returns to work for the employer when the education is completed. In such cases, the amounts so paid are employment income to the student under subsection 5(1) pursuant to subsection 6(3), and not scholarship or bursary income within the meaning of paragraph 56(1)(n)(i).
According to what you told us in a telephone conversation and according to what is recorded in the Taxpayer's documents attached to your request, the Taxpayer was employed by the Employer before she left for her studies and entered into the agreement with the Employer while she was in its service. It appears, therefore, that the Taxpayer was in a situation covered by paragraph 7 of Interpretation Bulletin IT-75R and that the amounts were received in respect of, in the course of, or by virtue of an office or employment. Amounts received in respect of, in the course of, or by virtue of an office or employment are excluded from paragraph 56(1)(n), even though they might otherwise have qualified as a scholarship for the purposes of that paragraph.
Guidelines have been established for determining whether reimbursement or payment of education expenses by an employer should be included in the employee's employment income. These are set out in Income Tax Technical News No. 13 (and subsequently in paragraph 18 of Interpretation Bulletin IT-470R (Consolidated)). The issue, therefore, is whether those Guidelines apply in the present situation and whether or not the reimbursement or payment of tuition fees by the Employer should be included in computing the Taxpayer's employment income.
The Guidelines apply to all assessments and reassessments issued on or after May 7, 1998. Consequently, the Guidelines applied when notices of reassessment were issued in XXXXXXXXXX for the XXXXXXXXXX taxation years. The Guidelines also applied to the XXXXXXXXXX taxation years.
The Guidelines provide that training courses that are taken to maintain or improve skills related to the employer's business are generally considered to be of primary benefit to the employer if it is reasonable to expect that the employee will return to employment for a significant period of time after the course is completed. These costs will not be taxable. In the present situation, we are of the view that the doctoral courses taken were in a field related to the Taxpayer's potential responsibilities with the Employer. Furthermore, the Taxpayer was to return to the Employer's employ for a period at least as long as the number of years she had pursued her doctoral studies and on the date of her submission (XXXXXXXXXX) she was still employed by the Employer. The Taxpayer was therefore employed for a significant period of time after the completion of her courses. Consequently, we are of the view that the reimbursement or payment of tuition fees by the Employer should not be included in computing the Taxpayer's employment income for the years XXXXXXXXXX inclusive in accordance with the Guidelines.
Any adjustment to the taxpayer's employment income would have an impact on the RRSP deduction limit balance as earned income would change. This could have an impact on the amount of the RRSP premium deduction. In addition, such tuition fees 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 your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope these comments are of assistance. If you require any further information regarding the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch