| 913421 | |
| 24(1) | A. Humenuk |
| (613) 957-2134 |
Attention: 19(1)
January 9, 1992
Dear Sirs:
Re: Benefits to Former Employees as a result of Downsizing
This is in reply to your letter of November 28, 1991 concerning the taxation of certain benefits to be paid to employees and former employees as a result of a corporate downsizing program.
You have asked for confirmation that the benefits arising from specified benefit plans described in subparagraph 6(1)(a)(i) of the Income Tax Act (the Act) will be non-taxable where these benefits are provided to former employees for a period of time after employment has terminated. Your letter specifically makes reference to the benefits derived from a private health services plan and a group term life insurance policy. Similarly, you request confirmation that counselling services in respect of the re-employment of individuals affected by the downsizing program such as
i. seminars and instructions on preparing resumes and on applying for new employment,
ii. psychological testing aimed at determining an individual's job profile or
iii. seminars or courses on computer skills or other courses intended to upgrade an individual's technical training offered by the company,
will not be taxable to the recipient regardless of whether the service is provided before or after the termination of employment.
In addition, you seek clarification as to whether counselling services in respect of re-employment as described in clause 6(1)(a)(iv)(B) of the Act would include tuition fee reimbursements of up to $5000 for;
i. seminars or courses on computer skills,
ii. courses taught at community colleges or universities taken to upgrade an employee's technical training or
iii. university level courses not directly related to the employee's current field of expertise.
We are not prepared to comment specifically on an actual situation without a review of all the significant facts and documentation. Your letter suggests that the downsizing program is already in place and that some of the benefits described in your letter have already been conferred on the employees affected. If you have a specific concern about the benefits offered, you should provide the relevant details to the appropriate District Taxation Office for their comments and consideration. However, we can provide the following comments relating to post-employment benefits in general.
It is our position that where an employer extends to former employees, those benefits which are otherwise non-taxable to current employees by virtue of subparagraph 6(1)(a)(i) of the Act, the benefits so described will also not be taxable to the former employees (provided the benefit arises by virtue of the former employment), notwithstanding that such benefits may technically be taxable under some other section of the Act.
As you have stated, subsection 6(4) of the Act sets forth the calculation of the income inclusion required where the life insurance coverage on an employee or former employee under a group term life insurance policy exceeds the limit set out in that subsection.
Counselling services in respect of the re-employment are excluded from income by virtue of subparagraph 6(1)(a)(iv) of the Act and by extension, the definition of retiring allowance in subsection 248(1) of the Act. Accordingly, it is our view that the benefit derived from counselling services in respect of re-employment are likewise not included in income regardless of whether the benefit is provided before or after the employment has been terminated.
With respect to your question on tuition fee reimbursements, it is important to distinguish between educational or training services which are not covered by the exemption in subparagraph 6(1)(a)(iv) of the Act and counselling services which are. It is our view that the tuition fee reimbursements for employees who will not be continuing to work for the same employer cannot be said to be undertaken primarily for the benefit of the employer. While such reimbursements are normally included in income as employment income, the reimbursement may be considered as a retiring allowance to the extent that the benefit can be shown to be an amount received in respect of the loss of office or employment.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch