ARCHIVED CD 1998-024

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November 6, 1998

SUBJECT: Employer-Paid Educational Costs (Tuition Fees)

1. PURPOSE

1.1 The purpose of this directive is to provide taxation information (source deductions) concerning new guidelines issued by Revenue Canada on employer-paid educational costs (tuition fees) applicable retroactively to include the 1997 taxation year.

Revenu Québec's policy is consistent with Revenue Canada's guidelines.

1.2 Treasury Board will provide direction to departments concerning the employer's training policies.

1.3 In this text, use of the masculine is generic and applies to both men and women.

2. CANCELLATION

2.1 This supersedes Services Pay Directive 1992-086(39) dated December 3, 1992 relative to the portion of the directive on Tuition Fees/Books only.

3. BACKGROUND

3.1 Revenue Canada has reviewed its guidelines on the employer-paid educational costs in relation to employment benefits taxed under paragraph 6(1)(a) of the Income Tax Act .

3.2 This review has resulted in the development of new guidelines retroactive to include the 1997 taxation year.

4. POLICY

4.1 The new guidelines are effective retroactively from January 1, 1997.

4.2 When the 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. A taxable benefit arises when the training is primarily for the benefit of the employee.

The new guidelines consider three broad categories of training:

Specific Employer-Related Training

Courses which are taken for maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume his employment for a reasonable period of time after completion of the courses, will generally be considered to primarily benefit the employer and therefore be non-taxable. For example, fees and other associated costs such as meals, travel and accommodation which are paid for courses leading to a degree, diploma or certificate in a field related to the employee's current or potential future responsibilities in the employer's business will not result in a taxable benefit.

General Employment-Related Training

Other business-related courses, although not directly related to the employer's business, will generally be considered non-taxable. Examples of non-taxable training would include stress management, employment equity, first-aid and language skills. Normally, in-house training will not be considered a taxable benefit.

Personal Interest Training

Employer-paid courses for personal interest or technical skills that are not related to the employer's business continue to be considered of primary benefit to the employee and thus taxable. For example, fees paid for a self-interest carpentry course would result in a taxable benefit.

4.3 It is the employer's responsibility to determine whether the educational costs should be treated as a non-taxable benefit under the new guidelines.

4.4 An employer-paid education non-taxable benefit paid directly to the employee or paid directly to the educational institution is not subject to income tax, EI, Canada Pension Plan (CPP)/Quebec Pension Plan (QPP). In this situation, the benefit will not be reflected on the employee's T4/ Relevé 1.

4.5 The reimbursement of non-taxable benefits to employees should be made by the employing departments Finance Section. These payments are not processed through the Regional Pay System.

4.6 An employer-paid education taxable benefit paid directly to the employee is subject to income tax, EI, and CPP / QPP at source. In this situation, the benefit will be reflected as income, insurable and pensionable earnings as well as the tax, EI, and CPP/QPP deductions on the employee's T4/ Relevé 1.

4.7 An employer-paid education taxable benefit paid directly to the educational institution is not insurable, however is subject to income tax and CPP/QPP upon the employee filing his income tax return. In this situation, the benefit should be reflected as income and pensionable earnings on the employee's T4/ Relevé 1.

Treasury Board has advised that their training policy does not permit this type of payment therefore no action would be required by Treasury Board departments.

Separate employers whose training policy may include these types of payments should ensure that the Finance Section of their organization issues a T4/ Relevé 1 reporting the benefit.

4.8 Employees who have their eligible tuition fees paid for or reimbursed by their employer and have not received a taxable benefit are not entitled to claim the tuition tax credit.

4.9 In addition, the education amount is not available, in any case, when employees have their tuition fees paid for or reimbursed by their employer or when they receive remuneration while taking training in connection with their duties of employment.

5. PROCEDURES/INSTRUCTIONS

5.1 Where the employer-paid education benefit had been determined as taxable by the employer, entitlement code 239 is to be used to issue an employer-paid education taxable benefit to the employee.

NOTE : Only taxable employer-paid education benefits are processed through the Regional Pay System. Treasury Board has advised that non-taxable employer-paid education benefits should be reimbursed/paid through the employing department's Finance Section.

5.2 Procedures to refund tax, EI premiums and CPP/QPP contributions for reimbursements issued in 1997.

Should these new guidelines alter the 1997 benefit determination whereby the benefit is now not taxable, an amended 1997 T4/ Relevé 1 will be required so that the employee may be reassessed by Revenue Canada/Revenu Québec. The reassessment of the employee's income tax return must be requested by the employee. Refunds of income tax, EI premiums and CPP/QPP contributions will be issued by Revenue Canada/Revenu Québec as applicable.

NOTE : Only those pay transactions processed through the Regional Pay System will be reversed. That is to say, where taxable reimbursements were processed through the client department's Finance Section, the Finance Section is responsible for the reversal of the taxable benefit.

Departments will be required to direct the written request for T4/Releve 1 amendments to their pay office. The necessary information to action these requests is as follows:

1. Employee identification
   • name
   • Personal Record Identifier (PRI)
   • department
   • paylist;
2. Gross amount of reimbursement already paid under entitlement code 239;
3. Amount of CPP/QPP contributions deducted (for pay office accounting purposes only to recover the employer's share);
4. Amount of EI premiums deducted (for pay office accounting purposes only to recover the employer's share)

Departments will also be required to provide the employee with a letter outlining the benefit that is deleted and the educational institution(s) to which they pertain. The employee, in addition to the amended T4/ Relevé 1, will use this letter for reassessment purposes.

The pay office will reduce the employee's gross pay (element 700), the pensionable earnings (element 706 or 707) and the insurable earnings (element 724) by the amount indicated in b) above.

The pay office must provide the Payroll Accounting Office (PAO) with a form PD24 'Statement of Overpayment and Application for Refund'for employee accounts requiring the recovery of the CPP/QPP and EI employer shares from Revenue Canada/Revenu Québec.

The PAO will then reduce the current remittance by the CPP/QPP and the EI employer shares as appropriate and advise Revenue Canada and Revenu Québec in the normal fashion.

5.3 Procedures to refund income tax, CPP/QPP contributions and EI premiums for reimbursements already issued in 1998 and prior to the issuance of the 1998 T4s/ Relevé 1s

Where these guidelines alter the 1998 benefit determination to non-taxable for which the employee has already been reimbursed and a 1998 T4/ Relevé 1 has not been issued, pay offices will refund the income tax, the CPP/QPP contributions and EI premiums deducted upon notification in writing by the client department.

NOTE : Only those pay actions processed through the Regional Pay System will be reversed. That is to say, where taxable reimbursements were processed through the client department's Finance Section, the Finance Section is responsible for the reversal of the taxable benefit.

Departments will be required to direct the written request for refunds to their pay office. The necessary information to action these requests is as follows:

1. Employee identification
   • name
   • Personal Record Identifier (PRI)
   • department
   • paylist;
2. Gross amount of payment already paid under entitlement code 239;
3. Amount of income tax (Federal/Quebec) to be refunded;
4. Amount of CPP/QPP contributions to be refunded;
5. Amount of EI premiums to be refunded.

The pay office will issue refunds as indicated in c), d) and e) above. In addition the pay office will reduce the employee's gross pay (element 700), the pensionable earnings (element 706 or 707) and the insurable earnings (element 724) by the amount indicated in b) above. As refunds of income tax, CPP/QPP and EI automatically reduce the corresponding elements, the pay office is not required to manually reduce these elements.

The PAO should be aware that the financial controls will automatically be reduced by any amount refunded.

5.4 Procedures to refund income tax, CPP/QPP contributions and EI premiums for reimbursements already issued in 1998 after the issuance of the 1998 T4s/ Relevé 1s

Should the determination of an employer-paid benefit be altered to non-taxable after the issuance of the 1998 T4s/ Relevé 1s, please follow the procedures outlined in section 5.2 herein.

6. INQUIRIES

6.1 Any request for information regarding the foregoing should be addressed to your Public Works and Government Services Canada Compensation Services Office.

Original Signed by
P. Charko

P. Charko
Director General
Compensation Sector
Government Operational Service

Reference: CJA 9010-1