Determine if the benefit is taxable

Generally, if you provide a benefit , an allowance or a reimbursement for educational assistance to your employee or your employee's family member, the benefit is taxable. Depending on your situation, the benefit may not be taxable under the Income Tax Act.

What is a scholarship or a bursary

• Benefit provided to your employee

  Situation: You provide your current or former employee a scholarship or bursary
  

  Taxable situation

  If you provide your current or former employee a scholarship or bursary on the condition that your employee returns to employment with you after completing the course, the benefit is taxable.

  Continue to Calculate the value of the benefit.

  Situation: You pay for or reimburse your employee for a training course or educational program
  

  Non-taxable situation

  If you pay for or reimburse your employee for a training course or an educational program, the benefit is not taxable if you can clearly demonstrate that you are the primary beneficiary of the course or program.

  Examples – Primarily for the benefit of the employer
  

  • Specific employment-related training

    Generally, the CRA considers that courses taken to maintain or upgrade employment-related skills are mainly for the employer's benefit when it is reasonable to assume that the employee will resume their employment for a reasonable period of time after they finish the course.

    This may include tuition fees and other associated costs such as books, meals, travel, and accommodation that employers pay for courses leading to a degree, diploma, or certificate in a field related to the employee's current or future responsibilities in the employer's business.

  • General employment-related training

    Generally, the CRA considers that other business-related courses, even if not directly related to the employer's business, to be taken mainly for the employer's benefit.

    This may include fees the employer pays for stress management, employment equity, first aid, and language courses.

  If the benefit is not taxable and you paid for the expense, your employee cannot claim the non-refundable tuition tax credit, or the educational amount, on their income tax and benefit return.

  Taxable situation

  If you pay for or reimburse your employee for a training course or educational program and it is primarily for the benefit of your employee, the benefit is taxable.

  Examples – Primarily for the benefit of the employee
  

  Courses, programs or training for personal interest or technical skills not related to the employer's business which are taken mainly for the employee's benefit.

  Continue to Calculate the value of the benefit.

• Benefit provided to your employee's family members

  Situation: You offer a program that provides free tuition or reduced tuition fees to your employee's family members
  

  Non-taxable situation

  If you offer a program that provides free tuition or reduced tuition fees to your employee's family member, the benefit is not taxable to your employee if all of the following apply:

  • You and your employee deal at arm's length
  • The benefit is not provided as a substitute for salary, wages or other remuneration of your employee

  Report on T4A slip

  As a payer, you must report the fair market value of the educational assistance paid on a T4A slip in the name of the family member.

  If the family member meets certain criteria, they may not have to include the amount in income on their income tax and benefit return.

  Learn more: Taxable scholarships, fellowships, bursaries, and artists' project grants.

  Taxable situation

  If the benefit provided does not meet all of the conditions above, the benefit is taxable. You must include the amount on a T4 slip in your employee's income for the year.

  Continue to Calculate the value of the benefit.

  Situation: You pay your employee an educational allowance for their children
  

  Non-taxable situation

  If you pay your employee an educational allowance for their children, the allowance is not taxable if all of the following apply:

  • The child is living away from the place of your employee's domestic establishment, where the employee is required to live because of their employment
  • The education is provided in the official language of Canada primarily used by your employee
  • The school is the nearest suitable school available in that official language
  • The child is in full-time attendance at the school
  • The subsidy you provide is reasonable and you must be prepared to justify your position

  Taxable situation

  If you pay your employee an educational allowance for their children and it does not meet all of the conditions above, the allowance is taxable. You must include the amount on a T4 slip in your employee's income for the year.

  Continue to Calculate the value of the benefit.

  Situation: You provide free or subsidized school services to your employee's children
  

  Non-taxable situation

  If you provide free or subsidized school services to your employee's children in a remote area where you are responsible for essential community services that a municipality would usually provide, the benefit is not taxable.

  This does not include an educational allowance or educational costs you pay directly to your employee.

  Taxable situation

  If the benefit does not meet the conditions above, the benefit is taxable. You must include the amount on a T4 slip in your employee's income for the year.

  Continue to Calculate the value of the benefit.

Calculate the value of the benefit

If the benefit is taxable, the value of the benefit is equal to:

• Fair market value of the benefit received or enjoyed
• minus Any amounts your employee reimbursed you
• equals Value of the benefit to be included on the T4 or T4A slip

Example 1 – No calculation

Corporation B paid for their employee Holly to take an accounting course at a local community college to upgrade her skills to take on more responsibilities in the payroll department. The employer reimbursed her the full $500 cost of the course.

• $500 is the total value of the course reimbursed by the employer
• minus $500 is the amount of the education benefits that are not taxable
• equals $0 is the total value of the education benefits that are taxable
• minus $0 because the employee does not reimburse the employer
• equals $0 is the value of the benefit to be included on Holly's T4 slip

You do not need to add the amount on Holly's T4 slip.

Debbie's employer is a university which allowed her brother to attend their courses for free. Her brother took one course in the tax year, which had a FMV of $600. Debbie deals with the employer at arm's length.

• $600 is the total value of the education benefit provided
• minus $0 is the amount of the education benefit that is not taxable
• equals $600 is the total value of the education benefit that is taxable
• minus $0 because the employee does not reimburse the employer
• equals $600 is the value of the benefit to be included on Debbie's brother's T4A slip

The value of the benefit is not included in Debbie's income because:

• The benefit is not provided as a substitute for Debbie's salary, wages or other remuneration
• Debbie deals with her employer at arm's length

Withhold payroll deductions and remit GST/HST

You must withhold payroll deductions and remit GST/HST depending on who the payment is made to.

• Benefit provided to your employee : Option 2

  The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .

  You must withhold the following deductions:

  • Non-cash and near-cash: Option 1

    Withhold:

    • Income tax
    • CPP
    • EI (do not withhold)

    Remit:

    • GST/HST in certain situations

  • Cash: Option 2

    Withhold:

    • Income tax
    • CPP
    • EI

    Do not remit:

    • GST/HST (do not remit)

  The amounts must be included in the pay period they were received or enjoyed.

  Learn how to calculate deductions and the GST/HST to remit: How to calculate – Calculate payroll deductions and contributions.

• Benefit provided to your employee's family members: Option 1

  Do not withhold deductions if the benefit is provided to your employee's family member.

  Continue to Report the benefit on a slip.

Report the benefit on a slip

You must report the benefit on a T4 or T4A slip depending on who the payment is made to.

• Benefit provided to your employee – T4 slip: Option 2

  If the benefit is taxable, you must report the following amounts on the T4 slip:

  • Non-cash and near-cash: Option 1

    Report on:

    • Box 14 – Employment Income
    • Box 26 – CPP/QPP pensionable earnings
    • Code 40 – Other Information

  • Cash: Option 2

    Report on:

    • Box 14 – Employment Income
    • Box 24 – EI insurable earnings
    • Box 26 – CPP/QPP pensionable earnings
    • Code 40 – Other Information

  Learn how to report on a slip: Fill out the slips and summaries – File information returns (slips and summaries).

• Benefit provided to your employee's family members – T4A slip: Option 1

  Even if the benefit is not taxable as employment income, you must report the following amounts on the T4A slip in the name of your employee's family member:

  • Code 105 – Scholarships, fellowships, bursaries, and artists' project grants

References

Legislation