Transitions and taxes

National Post

2008-05-24


Before you sign up for a course, learn if it's deductible

A common aspect of many successful career transitions is the process of upgrading employable skills. The costs of training, however, can be prohibitive.

You can get some tax relief for these training costs, provided you meet certain conditions.

The first is whether the training or course you are taking is to "maintain, update or upgrade" an existing skill, as opposed to providing a new, permanent "lasting benefit," in which case the costs would be considered a non-deductible capital expense.

Examples given by the Canada Revenue Agency of eligible training courses include professional development courses, either required or recommended by a professional body to maintain professional standards, such as a course on modern building materials taken by an architect or a tax course for an accountant or lawyer on the ever-changing tax rules.

If you are self-employed, you can generally deduct training fees as a business expense. If you are an employee, there is no specific deduction under the Tax Act for training expenses unless you are a commissioned salesperson.

This distinction seemed particularly unfair to Pirjo Setchell, who took the CRA to court in 2005 over $14,000 of training fees she paid to SAP Canada Inc. to attend a four-week computer training course.

Mrs. Setchell was a systems analyst for five years at the Hudson's Bay Company before she was laid off in 2003. Realizing her computer skills needed upgrading, she enrolled in the SAP course, successfully completed it and obtained a certificate issued by SAP.

She believed this course would lead to work with a company that used the SAP software, either as an employee or as an independent contractor.

The CRA argued that the fees were not deductible because Mrs. Setchell was not carrying on a business when she took the course.

The judge disagreed. He decided that since Mrs. Setchell was "actively pursuing business opportunities, then the business commenced even if no business contracts have been entered into."

Following the principle that training costs are deductible if they are incurred to maintain, update or upgrade an already existing skill or qualification, the judge allowed the $14,000 deduction.

Be forewarned, however, that if the training course results in a lasting benefit, the CRA will generally consider such fees to be "capital" in nature and may not be deductible.

Examples include a training course where a new skill or qualification is acquired, such as courses leading to a degree, diploma or professional designation. These are all considered to have an enduring benefit and are capital in nature.

If you are self-employed, such course fees may be considered to be "eligible capital expenditures" and are added to the "eligible property pool," where they can be amortized and deducted over time.

If you are an employee, however, you are specifically denied any such deductions for capital expenses. But, if the courses are part of a formal post-secondary school program, you may be entitled to claim a tuition tax credit for the fees paid. As part of the criteria for the tuition tax credit, the course must be at a recognized institution and lead to a certificate or a degree. So, if you are going for an MBA or a master's degree, this may be one way of recouping your "investing" costs.