Principal Issues: The taxability of amounts paid under an employer's scholarship program.
Position: If amounts are paid by arm's length employer for a post secondary school educational program - taxable to student. If amounts are paid for an elementary or secondary school program - continue to be taxable to the employee as a benefit.
Reasons: CRA's revised policy for employer-provided scholarship programs.
XXXXXXXXXX Michael Cooke, CA 2008-029604 August 20, 2009
Dear XXXXXXXXXX :
Re: Employer-provided Scholarship Program
We are writing in response to your letter of October 1, 2008, wherein you asked for our opinion on the taxability of amounts paid under a particular employer's scholarship program.
Briefly, under the particular scholarship program described in your letter, children of employees and children of retired employees may be entitled to receive certain educational assistance directly from the employer. These amounts are intended to help fund the cost of education at a private elementary school, private secondary school or a post secondary school. The employer's scholarship program is generally open to all children of its employees and retired employees.
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. This Circular and the other publications referred to in this letter are available on our website at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.
Our Comments:
As previously discussed (Cooke/XXXXXXXXXX ), your request was being held in abeyance pending a review of the Canada Revenue Agency's (the "CRA") existing policy (as outlined in Interpretation Bulletins IT-470R and IT-75R4) on employer-provided scholarships, bursaries and tuition benefits. This review was required due to several recent court decisions (i.e. DiMaria, Bartley and Okonski). As a result of the review, the CRA has revised its position on certain employer-paid education costs, which may be accessed at the CRA's website at: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/dctn/ttn-eng.html.
The CRA will accept that where an arm's length employer provides a post secondary scholarship, bursary or free tuition to family members of an employee under a scholarship program, the amount will be included in the particular student's income under paragraph 56(1)(n) of the Income Tax Act (the "Act") and not the employee's income as a taxable benefit under paragraph 6(1)(a) of the Act, regardless of the criteria used to award the amount. If the particular student is eligible to claim the education tax credit under subsection 118.6(2) of the Act, the entire amount may be exempt from tax pursuant to subsection 56(3) of the Act even though the payer is still required to report the amount on a T4A slip.
However, it should be noted that the above-described position does not apply to an employer-provided scholarship program for attendance at an elementary or secondary school (private or otherwise). As such, these amounts will continue to be treated as a taxable employment benefit to the particular employee.
We trust our comments will be of assistance to you.
Yours truly,
Rob Ferrari
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch