3 September 2010 External T.I. 2009-0339001E5 - 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: What is the income tax treatment of post-secondary tuition paid by an employer on behalf of an employee's family member?

Position: Generally, if amounts are paid by an arm's length employer for a post secondary school educational program, the amount is taxable to the student.

Reasons: CRA's revised policy for employer-provided scholarship programs

XXXXXXXXXX
								2009-033900

September 3, 2010

Dear XXXXXXXXXX :

Re: Employer Provided Scholarship Program

This is in reply to your letter of August 27, 2009 requesting our comments on the income tax treatment of amounts paid under an employer-provided scholarship program. We understand that a post-secondary educational institution administers a tuition reimbursement program for qualifying family members of its employees. Subject to certain criteria, the employer pays post-secondary tuition on behalf of an employee's family member (the "Student").

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate 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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which are not binding on the Canada Revenue Agency (the "CRA").

Our Comments

As a result of recent jurisprudence (i.e., DiMaria, Bartley and Okonski), the CRA reviewed its policy outlined in Interpretation Bulletins IT-470R and IT-75R4 on employer-provided scholarships, bursaries and tuition benefits.

Based on 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 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. However, it is a question of fact whether a particular amount will constitute a scholarship or bursary under paragraph 56(1)(n) of the Act. For example, where an employer's scholarship criteria provides awards for attendance at an elementary or secondary school, these amounts will not constitute a scholarship or bursary of the Student under paragraph 56(1)(n) of the Act.

Normally employee tuition programs are intended for student family members who are a child or spouse of the employee. There is no requirement in paragraph 56(1)(n) of the Act for a taxpayer, in receipt of an amount, to have a dependency status. Therefore, a receipt of a scholarship by a financially independent child or spouse would generally have the same tax result under paragraph 56(1)(n) of the Act as a dependent child or spouse.

Every person who makes a payment or who confers a benefit that is a scholarship, fellowship or bursary is required to file a T4A information return as prescribed by paragraph 200(2)(a) of the Income Tax Regulations.

We trust our comments will be of assistance to you.

Yours truly,

Lita Krantz, CA
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch