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Monday, October 7, 2013

New Tuition Benefit: Tax-Free For Your Employees!

TAX LAW
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New Tuition Benefit: Tax-Free For Your Employees!
Despite challenging economic times, many corporations across Canada remain committed to advancing employee education through tuition reimbursement policies. These types of policies help companies to retain talent and lower the risk of attrition. Some companies also extend tuition assistance to their employees’ spouses and dependent children. This assistance ranges from full to partial reimbursement of private school or post-secondary tuition fees. The assisting company usually covers the cost of tuition only, while the employee or family member of the employee remains responsible for paying any non-instructional fees and purchasing books and other supplies.

Historically, the Canada Revenue Agency (the "CRA") treated tuition assistance for an employee's family member as a taxable benefit to the employee and required the company to attribute a fair market value (FMV) to this benefit. The CRA's position was successfully challenged in a recent court case, and is also overruled in certain circumstances by a legislative change to the Income Tax Act (Canada) enacted on June 26, 2013. The legislative amendment provides that if four specific conditions are met, free or discounted tuition for an employee's family member is not subject to tax in the hands of the employee. This means that if you provide the family members of your employees with free or reduced tuition assistance and the conditions for the application of the exemption are met, you will not need to include the amount of the assistance in the employee's T4 as taxable income. Instead, you will report the FMV of this benefit as a bursary on a T4A slip for the family member. If the family member in turn meets certain criteria, then this benefit might be excluded from tax altogether.