Principal Issues: The taxable status of an employee dependant scholarship program.
Position: Included in income of the employee under paragraph 6(1)(a).
Reasons: Paragraph 6(1)(a) of the Act is a provision of broad import and will include in a taxpayer's employment income the value of a benefit that was directly received or enjoyed by another person because of the taxpayer's office or employment, including employer-provided scholarships to dependants of employees. On an administrative basis the CRA will accept that certain employer-provided scholarships to dependants of employees can instead be included in the income of the dependant under paragraph 56(1)(n) of the Act. For paragraph 56(1)(n) of the Act to apply to the dependant's scholarship, there must be objective selection criteria that focus on the accomplishments of the dependant, for example, scholastic achievement. In this regard, the employer's selection criteria for scholastic achievement must be higher than the minimum entrance requirements for most post-secondary institution; otherwise, any dependant who enters a post-secondary education program would qualify for a scholarship. Further, there must actually be a limited number of scholarships provided by the employer, such that the number of dependants chosen from those who are otherwise eligible should be low enough that most employees could not expect their dependants to be selected. Collectively, these criteria will ensure that the merit of the dependant is prevalent in the employer's selection rather than the employee's relationship with the employer. In terms of a situation where the employment relationship is severed, for example, where a scholarship is awarded to the dependant of a retired or deceased employee, paragraph 56(1)(n) of the Act would apply to include the amount in the dependant's income.
