28 March 2006 External T.I. 2005-0159941E5 - Training Expenses

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: Whether the costs incurred for an individual to obtain Master's degree via distance from a university outside Canada would be considered deductible in accordance with IT 357R2.

Position: No

Reasons: Costs of training for self-employed individuals that result in a lasting benefit are generally considered to be capital in nature and therefore not deductible by virtue of paragraphs 18(1)(b).

								2005-015994
XXXXXXXXXX 							Darlene Green
(613) 957-2082
March 28, 2006

Dear XXXXXXXXXX

Re: Technical Interpretation Request: Section 18(1)(a) and IT-357R2

This is in response to your correspondence of November 16, 2005, in which you request an interpretation on whether training costs of your client, a physician, undertaking a distance-education Master's Degree program at a university outside Canada, will be deductible expenses.

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 general comments.

Our comments:

Interpretation Bulletin IT 357R2 - Expenses of Training, discusses the Canada Revenue Agency's general position on the taxable status of training costs. For your client, the status of the training will depend, in part, on whether he is self-employed or an employee. If he is self-employed, the expenses would be considered capital in nature but he may be entitled to a deduction as an eligible capital expenditure, which is discussed in Interpretation Bulletin IT-143R3 - Meaning of Eligible Capital Expenditure. Such expenditure generally results in an enduring benefit that does not come within any of the capital cost allowance classes but rather goes into an eligible capital property pool where a percentage of the balance of the pool at the end of the year may be claimed as a deduction for the year.

If your client is an employee, no deduction is available in computing employment income but a tuition tax credit and / or an education tax credit may be available provided all requirements are met. For more information on these tax credits, please refer to Interpretation Bulletins IT 516R2 and IT 515R2 which, along with those referenced above, are available on our website at www.cra-arc.gc.ca.

We trust that our comments will be of assistance to you.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch