1 September 2009 External T.I. 2009-0312451E5 - Employer-Provided Scholarship Program

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: The taxability of amounts paid under an employer's scholarship program. In the first scenario, the amounts are paid by the employer for a post-secondary school educational program for an employee's family members. In the second scenario, the amounts are paid for the employee's education.

Position: In the first scenario, if the amounts are paid by an arm's length employer for a post-secondary school educational program for an employee's family member, the amounts are taxable to student. In the second scenario, whether the amounts are taxable to the employee as a benefit or not remain a question of fact.

Reasons: CRA's revised policy for employer-provided scholarship programs for first scenario and CRA's position outlined ITTN #13 for second scenario.

XXXXXXXXXX  							Michael Cooke, CA
									2009-031245
September 1, 2009

Dear XXXXXXXXXX :

Re: Employer-Provided Scholarship Program

We are writing in response to your letter of March 4, 2009, wherein you asked for our opinion on the taxability of amounts paid under an employer-provided scholarship program in the two scenarios described below.

Briefly, in the first scenario, you indicate that an employer will fund a post-secondary scholarship program for dependant students of its full-time or part-time employees. Eligible students must meet certain pre-established eligibility conditions such as academic performance, quality of letters of reference, volunteer/community involvement and leadership. The scholarship selection committee is an independent committee comprised of Canadian University and College representatives.

In the second scenario, the employer will extend the above-described scholarship program to include post-secondary school education assistance and/or training for its full-time and part-time 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

Post-secondary scholarship program for family members of employees:

As a result of several recent court decisions (i.e., DiMaria, Bartley and Okonski) the Canada Revenue Agency ("CRA") reviewed its existing policy (as outlined in Interpretation Bulletins IT-470R and IT-75R4) on employer-provided scholarships, bursaries and tuition benefits.

As a result of this review, the CRA now accepts 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 particular 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. The employer is still required to report the amount on a T4A slip.

We would like to point out 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). These amounts will continue to be treated as a taxable benefit to the particular employee.

Employer-paid training or educational assistance for employees:

The above-described revised position does not change our current position for employer-paid training or educational assistance for its arm's length employees. The CRA's views may be found in Income Tax Technical News 13 ("ITTN #13") and the Employer's Guide - Taxable Benefits (T4130). ITTN #13 states:

"When the training is taken primarily for the benefit of the employer there is no taxable benefit, whether or not this training leads to a degree, diploma or certificate. A taxable benefit arises when the training is primarily for the benefit of the employee."

We also draw your attention to the comments on "Specific Employer-Related Training", which may or may not be applicable:

"Courses which are taken for maintenance or upgrading of employer-related skills, when it is reasonable to assume that the employee will resume his or her employment for a reasonable period of time after completion of the courses, will generally be considered to primarily benefit the employer and therefore be non-taxable."

An individual is not entitled to claim the education tax credit where there has been any amount of reimbursement, allowance or benefit from an arm's length person (including an employer with which the student deals at arm's length). There is no provision in the Act such as there is for the tuition tax credit, which allows the education tax credit to be claimed on the basis that the tuition fees are included as a taxable benefit to the taxpayer. The CRA's general, current views regarding this subject are contained on the CRA website and in pamphlet P105, Students and Income Tax.

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