2015-0623221E5 Taxability of employer-provided tuition assistance

Principal Issues: Whether the value of tuition assistance benefits provided to the family member of an employee under a collective agreement is taxable to the employee?

Position: Question of fact.

Reasons: See response.

Author: Baltkois, Thomas
Section: 6(1)(a); 6(1)(a)(vi)

XXXXXXXXXX                                                                                                  2015-062322
                                                                                                                          T. Baltkois

April 26, 2016

Dear Mr. XXXXXXXXXX:

Re: Taxability of employer-provided tuition assistance

We are writing in response to your correspondence of September 3, 2015, which was forwarded from the XXXXXXXXXX Tax Service Office, and received by this Directorate on December 15, 2015. In this correspondence, you asked whether the tuition assistance received by a member of your family from your employer should be included in your income (as employment income) under paragraph 6(1)(a) of the Income Tax Act (Act), or excluded from your income by subparagraph 6(1)(a)(vi) of the Act. The tuition assistance is provided through a scholarship plan (Program) in the collective agreement negotiated by your employer and your employee union.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Generally, all benefits received or enjoyed by an employee (or by a person who does not deal at arm’s length with the employee) from an office or employment are included in the employee’s income under paragraph 6(1)(a) of the Act, unless specifically excluded by another provision of the Act.  Therefore, the value of any tuition assistance received by an employee’s family member from the employee’s employer will generally be included in the employee’s income unless excluded by subparagraph 6(1)(a)(vi) of the Act.

Subparagraph 6(1)(a)(vi) of the Act provides that any benefit an employee’s family member receives or enjoys under a program offered by the employer that is designed to assist the family member in furthering his or her education, will be excluded from the employee’s income. However, such benefits are only excluded from the employee’s income when it is reasonable to conclude that the benefit is not a substitute for salary, wages or other remuneration of the employee, and the employee and employer deal with each other at arm’s length. For information on what constitutes arm’s length, please see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length.

Subparagraph 6(1)(a)(vi) of the Act generally applies to scholarships or bursaries (e.g., free or reduced tuition fees) provided to an employee’s family member to attend an elementary, secondary, or post-secondary school. See paragraphs 3.7 and 3.8 of Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education, for more information about scholarships and bursaries.

Under the Program, eligible members of an employee’s family (e.g., a spouse and dependent children) are entitled to receive tuition assistance to further their post-secondary education (subject to satisfying other conditions). It is our understanding that your employer considers the tuition assistance provided through the Program to be a substitute for the salary, wages, or other remuneration of employees.

Whether it is reasonable to conclude that the tuition assistance received or enjoyed by an employee’s family member is not a substitute for the salary, wages, or other remuneration of the employee is a question of fact, and would have to be determined on a case-by-case basis.

Factors which may suggest that the tuition assistance is not a substitute for salary, wages, or other remuneration could include:

*     the employee does not receive lower salary, wages, or other remuneration than other employees (i.e., employees with similar credentials, similar job functions, experience, seniority, etc.) whose family members do not receive (or are not eligible to receive) tuition assistance;

*     the employee does not forego salary, wages, or other remuneration to which he or she is entitled (currently or in a future year), to fund or partially fund the tuition assistance;

*     there is no evidence which links the tuition assistance to a specific reduction in the employee’s salary, wages, or other remuneration.

In our view, the fact that the tuition assistance is provided pursuant to a collective agreement would not, in and of itself, be sufficient to conclude that the assistance was a substitute for salary, wages, or other remuneration.

Where it is reasonable to conclude that the tuition assistance is not a substitute for an employee’s salary, wages, or other remuneration, and provided that the employee deals at arm’s length with the employer, the tuition assistance would likely be excluded from the employee’s income by subparagraph 6(1)(a)(vi) of the Act, regardless of whether the assistance is provided pursuant to a collective agreement. However, in such a case, there may be tax consequences for the employee’s family member. For additional information, please refer to paragraphs 3.18 and 3.90 of Income Tax Folio S1-F2-C3.

We trust these comments will be helpful.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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