THE CRA’S NEW ADMINISTRATIVE POLICY ON EMPLOYER PROVIDED TUITION FEES, SCHOLARSHIPS AND BURSARIES
It has become somewhat of a trend in recent years for employers to offer the family members of their employees free tuition, a scholarship or a bursary. Both employees and employers will likely be interested in the Canada Revenue Agency’s (CRA's) new administrative policy on these types of payments.
CRA’s Previous Administrative Policy
Under the CRA’s previous administrative policy, for scholarships and bursaries to be subject to tax in the hands of the student and not the employee, there must have been some limitations on who was eligible to receive it. The selection criteria were often based on scholastic records or other achievements, but in most cases were based on merit. For example, if a limited number of scholarships were awarded by a selection panel to only some eligible persons, then that would be considered a true scholarship. If it was not a “true scholarship”, then the CRA’s position was that the amount was taxable to the employee as a benefit.
CRA’s Revised Administrative Policy
In light of some recent court cases, the CRA has revised its position on these types of payments. Specifically, the CRA now recognizes education assistance as a scholarship even if it is provided to all employees without any limitations around qualification. What this means is that, starting with the 2007 taxation year, these types of payments will not be included in the employee’s income. Instead, the fair market value of the amount is to be reported as a scholarship on a T4A slip for the family member. Examples of when the incentive would be considered a scholarship include the following:
- If, as a post-secondary educational institution, an employer provides free tuition to an employee’s family member;
- If an employer paid or reimbursed the cost of tuition fees, books and supplies related to post-secondary education for an employee’s family member; and
- If an employer operates a post-secondary scholarship or bursary program for the family members of its employees.
It is worth noting that if an employer provides scholarships, bursaries or tuition to an employee’s family member who attends either an elementary or secondary school, as opposed to a post-secondary educational institution, the CRA believes that the fair market value of these benefits will be a taxable benefit to the employee and as such will have to be included in the employee’s income.
It should also be pointed out that the revised administrative policy does not apply where it is reasonable to conclude that the amount was received by virtue of a parent’s shareholdings as opposed to their employment.
Reporting the Amounts
If you are an employer and have included the fair market value of the tuition fees or a scholarship award for a family member in an employee’s income for 2007 and 2008 and fall within the parameters of the new criteria provided by the CRA then you have the option of amending that employee’s T4 slip for those years and issuing a T4A slip to the family member. Keep in mind that this change may mean that you overpaid your share of the CPP contributions and EI premiums.
If you have already deducted and remitted these amounts for 2009 you are allowed to correct any remitting errors. Specifically, if you have over-remitted in 2009, attach a note to your T4 summary indicating the reason for the overpayment and whether you want the CRA to transfer this amount to another account or another year, or refund the overpayment to you. If you have already filed your T4 summary, you can ask for an amendment. See CRA Guide T4001, Employers’ Guide - Payroll Deductions and Remittances available on the CRA’s website for more information on this.
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