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Very rarely does Canada Revenue Agency (CRA) give a gift to taxpayers. Usually, CRA is quick to assign a taxable benefit to a taxpayer who in turn will pay taxes on this benefit.
However, there is a little known section of the income tax act that does the opposite.
In the past, if the child of an employee of an elementary or secondary private school attended the school and the employee-parent paid reduced tuition, a benefit was calculated on the fair market value of the tuition and was included in the income of the parent.
Until then, only the child of an employee working in a post-secondary institution was granted the benefit of reduced tuition. This was considered to be a scholarship or a bursary. It did not extend to the children of elementary and secondary schools’ employees. This was challenged in court and the taxpayer won.
Now this benefit of reduced tuition is not taxable in the hands of the parent/employee but in the hands of the child/student for all students including:
- Post secondary levels
CRA came back with 4 legislative amendments that have to be met to qualify for this tuition reduction benefit. If all 4 of these conditions are met, the benefit is taxable in the hands of the student and not the parent.
The 4 CRA conditions of the tuition assistance benefit are as follows:
- The tuition assistance must be enjoyed by an individual other that the employee (i.e. the child of the employee).
- 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 child to further their education and explicitly provides free or reduced tuition to accomplish this goal.
- The employee and the employer must deal with each other at arm’s length. That means that they cannot be related to each other.
- The tuition assistance benefit cannot be a replacement for the salary of the employee. The employee must receive his full salary similar to the one an employee with the same qualifications (and who does not have a child at the school) would receive.
It is important that the tuition assistance program be available to all employees who have children at the school regardless of the status and position of the employee at the school. For example the tuition assistance that a principal would receive cannot be any different than the one offered to the children of the janitor. If CRA discovers that this is not the case, CRA would assess the benefit back to the employee.
In February when T4’s are prepared for the employees, T4A’s will have to be prepared for the students. Students will have to be in possession of a social insurance number.
If you are uncertain how these CRA tuition assistance program rules affect you, contact your Manning Elliott advisors and we would be happy to assist you in navigating these complex tax issues.
Catherine Miller, CPA, CA, is a Partner at Manning Elliott LLP. She provides accounting, and assurance services for privately held businesses, not-for-profit organizations (NPOs) and registered charities on a wide range of income tax planning and tax compliance matters. To contact Catherine, feel free to call her at 604-714-3629 or email her at email@example.com
The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.