Principal Issues: 1. Will a reimbursement of tuition in respect of a student from a family member's employer preclude the student from claiming the education tax credit when the reimbursement is included in the employee's income as an employment benefit?
2. If the reimbursement is not included in the employee's income, will the student be precluded from claiming the education tax credit?
Position: 1. Generally, no.
2. It depends on the nature of the payment. If the payment is a scholarship or bursary to the student and included in the student's income under 56(1)(n), generally, the student will not be precluded from claiming the education tax credit.
Reasons: 1. Where the reimbursed tuition is included in the employee's income as a taxable employment benefit, the student family member (spouse or child of the employee) will not be considered to have received a benefit from a person with whom the student is dealing at arm's length.
2. For 2007 and subsequent years, amounts paid to employees' dependants for tuition can be treated as a scholarship or bursary based on the Bartley, Dimaria and Okonski court cases. Receiving a scholarship or a bursary from an arm's length party does not preclude a student from claiming the education tax credit.
2009-030772 XXXXXXXXXX P. Burnley (613) 957-2100 October 6, 2009
Dear XXXXXXXXXX :
Re: Qualifying Educational Program and the Education Tax Credit
This is in response to your letter of January 21, 2009, inquiring about the definition of "qualifying educational program". Specifically, you have asked if the education tax credit is available to students in situations where a spouse or parent receives a reimbursement in respect of the student's post-secondary tuition as a result of the spouse's or parent's employment. In particular, you refer to a situation where an individual is employed at a college or university and therefore receives a reimbursement of tuition for their spouse or child who is a student at the college or university, and the reimbursement is included in the individual's (i.e., the employee's) income as a taxable benefit.
The situation outlined in your letter appears to relate to a factual one, involving specific taxpayers. 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". This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of assistance.
Subsection 118.6(1) of the Income Tax Act (the "Act") provides that a "qualifying educational program" for the purposes of the education tax credit does not include a program if the student receives, from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement for expenses in respect of the program other than such things as a scholarship or bursary, a Canada Student Loan or certain government financial assistance paid pursuant to an agreement with Human Resources and Skills Development Canada. Therefore, where an individual receives a reimbursement from his employer, with whom he deals at arm's length, for his own tuition, he is not eligible to claim the education tax credit.
However, where the reimbursed tuition is received in respect of a student family member (e.g., a spouse or child of the individual), and is included in the individual's income as a taxable employment benefit, the student family member will not be considered to have received a benefit from an arm's length party with respect to the reimbursement. Therefore, in this situation, the receipt of the reimbursed tuition by an individual, when included in that individual's income, will not preclude the student family member from claiming the education tax credit.
You have asked if our views would be different if the reimbursed tuition was not considered to be an employment or other taxable benefit to the individual. The tax treatment of such a payment would be dependent on the nature of the payment. Generally, reimbursed tuition is either a taxable benefit to the individual or scholarship income (i.e., a scholarship, fellowship or bursary) to the student family member. When the amount is determined to be scholarship income to the student, the amount is included in the student's income under paragraph 56(1)(n) of the Act, and the student is not precluded from claiming the education tax credit. Further information on education related benefits can be found on CRA's website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/dctn/ttn-eng.html.
We trust that these comments will be of assistance.
Yours truly,
Eliza Erskine
A/Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch