1 June 2004 External T.I. 2004-0069811E5 - Free Tuition For An Employee's Dependant

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: In a factual situation, whether the FCA decision in Guay would apply to exclude from employment income free tuition for an employee's child.

Position: No.

Reasons: The outcome of the FCA decision in Guay will only be applied in situations that are identical. As a general rule such benefits are included in an employee's income under paragraph 6(1)(a) of the Act.

XXXXXXXXXX Randy Hewlett, B. Comm.

2004-006981
June 1, 2004

Re: Taxable Benefit - Free Tuition For An Employee's Dependant

We are writing in response to your letter of March 31, 2004, wherein you requested our opinion on the taxable status of free tuition for an employee's child to attend a private school in a foreign country where the employee works.

You indicated that the employee is a Canadian resident who is transferred by the employer to a foreign country to work on a contract that the employer has with the government of that country. The employee is sponsored by the foreign government and would not otherwise be allowed to work in the country. The employee's child is not allowed to attend the public school system in the country because all expatriates who work there are required to send their children to private schools. The foreign government designated the private school and directly paid the tuition on behalf of the employee because of the contract with the employer. The employee's child resides with the employee while in attendance at the private school.

In your view, the tuition paid by the foreign government is not a taxable benefit for purposes of paragraph 6(1)(a) of the Act because there is no "economic advantage" conferred on the employee. You indicated that if the employee were not working in the foreign country, the child would attend a public school system in Canada at no cost to the employee. In support of your view you cited the decision of the Federal Court of Appeal (the "FCA") in Louis Guay v. Her Majesty the Queen (1997 DTC 5267).

Our Comments

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 are prepared to offer the following comments.

Paragraph 6(1)(a) of the Act includes in a taxpayer's income "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". In our view, the employee is required to include a taxable benefit in employment income in respect of the tuition paid by the foreign government so the employee's child could attend the private school. The outcome of the FCA decision in Guay will only be applied in situations that are identical.

We trust our comments are of assistance.

Yours truly,

Randy Hewlett, B.Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch