From: canada.revenue.agency@hotmail.com   
      
   Canada: New Tuition Benefit: Tax-Free For Your Employees! : CRA SOTW   
      
   Last Updated: October 2 2013   
   Article by Natasha Miklaucic - Borden Ladner Gervais LLP   
      
   Despite challenging economic times, many corporations across Canada remain   
   committed to advancing employee education through tuition reimbursement   
   policies. These types of policies help companies to retain talent and lower   
   the risk of attrition. Some    
   companies also extend tuition assistance to their employees' spouses and   
   dependent children. This assistance ranges from full to partial reimbursement   
   of private school or post-secondary tuition fees. The assisting company   
   usually covers the cost of    
   tuition only, while the employee or family member of the employee remains   
   responsible for paying any non-instructional fees and purchasing books and   
   other supplies.   
      
   Historically, the Canada Revenue Agency (the "CRA") treated tuition assistance   
   for an employee's family member as a taxable benefit to the employee and   
   required the company to attribute a fair market value (FMV) to this benefit.   
   The CRA's position was    
   successfully challenged in a recent court case,1 and is also overruled in   
   certain circumstances by a legislative change to the Income Tax Act (Canada)   
   (ITA) enacted on June 26, 2013.2 The legislative amendment provides that if   
   four specific conditions    
   are met, free or discounted tuition for an employee's family member is not   
   subject to tax in the hands of the employee. This means that if you provide   
   the family members of your employees with free or reduced tuition assistance   
   and the conditions for the    
   application of the exemption are met, you will not need to include the amount   
   of the assistance in the employee's T4 as taxable income.Instead, you will   
   report the FMV of this benefit as a bursary on a T4A slip for the family   
   member. If the family member    
   in turn meets certain criteria, then this benefit might be excluded from tax   
   altogether.3   
      
   In order for your employees to benefit from this new exemption, you will need   
   to ensure that four requirements are met. First, the tuition assistance   
   benefit you provide must be enjoyed by an individual other than your employee.   
   For instance, if you    
   provide your employee with tuition assistance for job-related courses then   
   this exemption will not apply (and your employee will have to include a   
   taxable benefit in his/ her income). Determining who has received or enjoyed   
   the benefit of your company's    
   tuition assistance program is a factual question that requires an examination   
   of specific facts and circumstances.   
   Second, the tuition assistance benefit must be provided under a structured   
   program to further education. This means that the benefit should arise from a   
   documented program that is designed to assist the employee's family members to   
   further their    
   education and explicitly provides free or reduced tuition to accomplish this   
   goal. Employer programs aimed at assisting an employee with family financial   
   obligations will not qualify. Again, determining whether this condition is   
   satisfied will depend on    
   the particular facts and circumstances of the program.   
      
   Third, the employee and the employer must deal with each other at arm's   
   length.4 The ITA provides rules that determine whether persons are considered   
   to deal with each other at arm's length. For example, if the employee is also   
   an owner or controlling    
   shareholder of the employer then the tuition assistance exemption will not   
   apply.   
      
   Fourth, the tuition assistance benefit must not be a substitute or replacement   
   for any of your employee's compensation or employment benefits. This means   
   that the free or reduced tuition assistance must not be a negotiated term of   
   employment or provided    
   to employees as an optional benefit that can be substituted for another   
   employment benefit.   
      
   If you want to establish, or already have, a tuition assistance program for   
   family members of your employees, qualifying for this new legislative   
   exemption means that your employees will pay less income tax as the tuition   
   assistance benefit will not have    
   to be included in their taxable income. You can take advantage of this new   
   exemption by ensuring that you develop and maintain a properly documented   
   company tuition assistance program that meets the four requirements of the   
   exemption. In doing so, it is    
   important to be aware that factors such as offering different levels of family   
   tuition assistance depending on the status of the employee (for example, full   
   or part-time, management or administrative staff) may increase the risk that   
   the CRA will    
   consider the tuition assistance to be employee compensation that must be   
   included in your employees' income. We have experience in setting up tuition   
   assistance programs and can provide you with a simple solution that will not   
   only further the education    
   of your employees' family members but also meet the requirements of the   
   tuition assistance exemption.   
      
   For further details on how to set up or tailor your tuition assistance program   
   to qualify for the exemption, or if you have any questions concerning this   
   article, please contact Natasha Miklaucic at 416.367.6233 or nmiklaucic@blg.com   
      
   Footnote   
   1 Bartley and DiMaria, [2009] 2 CTL 73 (FCA).   
   2 See subparagraph 6(1)(a)(vi) of the ITA. The provision applies retroactively   
   to October 30, 2011.   
   3 Subparagraph 56(3)(a)(ii) of theITA provides an exemption, which among other   
   things, excludes from taxable income the full amount of a scholarship,   
   fellowship or bursary received in connection with the taxpayer's enrolment in   
   an elementary or secondary    
   school educational program.   
   4 Specifically, under subsection 251(1) of theITA, non-arm's length   
   relationships will be determined by looking at whether or not individuals are   
   related, whether or not there is a beneficial interest present (for instance,   
   as between a taxpayer and a    
   personal trust) and whether or not, as a question of fact, persons not related   
   to each other are at a particular time dealing with each other at arm's length.   
      
      
      
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