Employer payment or reimbursement of training costs under the Canadian Income Tax Act

Tax Executive, The, May-June, 1998

On April 15, 1998, Tax Executives Institute submitted the following comments to Revenue Canada on the treatment of an employer's payment or reimbursement of training tuition fees under the Canadian Income Tax Act. The comments took the form of a letter from TEI President Paul Cherecwich, Jr. to Roy C. Shultis, Director General of Revenue Canada's Income Tax Rulings and Interpretations Directorate. The submission was prepared under the aegis of TEI's Canadian Income Tax Committee whose chair is Alan Wheable of Canada Trust.

I am writing in response to the invitation extended to Tax Executives Institute, Inc. (TEI), in your letter of March 10, 1998, to Alan Wheable, Chair of TEI's Canadian Income Tax Committee. You requested TEI's views on the proper tax treatment of fees and tuition for employer-paid training of employees, whether the payments are made directly to the provider or indirectly by reimbursing the employee. We are pleased to provide Revenue Canada (hereinafter "the Department") with the following comments.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. The Institute's 5,000 professionals manage the tax affairs of the leading 2,800 companies in Canada and the United States and must contend daily with the planning and compliance aspects of Canada's business tax laws. Canadians make up 10 percent of TEI's membership and, whereas the comments set forth in this letter reflect the views of the Institute as a whole, the comments are grounded in the experience of our Canadian constituency. TEI is committed to maintaining and improving a tax system that works -- one that effectively implements sound tax policy, that is administrable by Revenue Canada, and that does not impose undue compliance or recordkeeping burdens on taxpayers. We believe that our recommendation concerning the tax treatment of tuition for employer-paid training will not only reduce resources devoted by both large and small business taxpayers (and individuals) to compliance and recordkeeping but also minimize the time and resources expended by Revenue Canada verifying taxpayers' records during audits.

Overview

The wealth and well-being of society depend upon the general intelligence and educational achievement of its people. In the waning years of the twentieth century, the business and economic environment is rapidly shifting from an industrial and manufacturing orientation to a knowledge and information-based economy. Now, more than ever, the links between education and economic prosperity are both apparent and immutable. Entrepreneurial and economic success in an information age depends on hew quickly businesses and employees assess fast-changing conditions and innovate to develop the products and services that markets demand. Without doubt, the education and training of employees is a crucial component that will enable companies to thrive in a fast-paced and globally competitive economy.

The Minister of Finance recently spoke to the interrelationships of education and economic success. In his February 1998 budget speech, the Honourable Paul Martin stated:

For 200 years in Canada,

prosperity and knowledge

have gone hand in hand.

However, let us understand

the true nature of the dynamic

at play. As a society,

we are not educated because

we are prosperous. We are

prosperous because we have

extended the frontiers of education....

The creation of jobs in the

new millennium will be anchored

in two essential components:

the infrastructure

of innovation, and the infrastructure

of skills and knowledge.

In today's evolving world --

to get a job, to keep a job, to

move on to a better job --

there is only one resource

that will equip Canadians to

succeed, and that is to develop

the very best skills they

can.

In a very real way, the opportunity

to learn must be

the central part of any national

jobs strategy.

While employers must depend on the schools and universities to provide the essential base of knowledge and skills, that foundation alone is insufficient for businesses to attain excellence and remain competitive. Indeed, the essential trait that must be fostered is an attitude and atmosphere favourable to lifelong learning, for this is the basis of success in the global workplace and economy. Again, the Minister emphasized this:

The demand for knowledge

and skills spans all occupations,

at all levels, in all sectors -- from

factory to farm,

from software to sales, from

medicine to mechanics. Nor

is this only about young people.

It is also about the need

to upgrade skills and develop

new ones consistently

throughout all of our working

lives. Quite simply, every

Canadian who wants to learn

should have the opportunity

to do so .... [paragraphing

omitted.]

Each of us must do our part.

We will only be truly successful

in creating opportunity

for all if we act in partnership

-- a partnership of parents,

of educators, of the private

sector, and of provincial

and federal governments.

In light of the Minister's budget message, the Department's review of its administrative interpretation of the proper tax treatment of employer-paid training, with a view to clarifying the guidelines for determining whether the employee or the employer is the primary beneficiary, is propitious.