Some educational institutions and other organizations provide
tuition assistance to family members of their employees.
Historically, Canada Revenue Agency's treatment of such
assistance required this benefit to be reported as taxable income
to the employee. However, this summer, the law changed. I asked my
colleague Natasha Miklaucic to provide an update on how
organizations can allow employees to benefit from a new exemption
under the Income Tax Act.
Question:What is the new exemption?
Natasha: Under the new exemption, an employee
would not be subject to tax with respect to the receipt of free or
reduced tuition for a member of his or her family. The employee
would be able to benefit from this new exemption only if certain
requirements are met.
Question:What are the requirements?
Natasha: There are four. First, the benefit
provided by the organization must be enjoyed by an individual other
than the employee, such as a child of the employee. Second, the
tuition assistance benefit must be provided under a structured
program to further education, as opposed to, for example, a program
aimed at assisting an employee with financial obligations. Third,
the employee and employer must deal with each other at arm's
length, which includes looking at whether individuals are related
at a particular time. The final requirement is that the tuition
assistance benefit must not be a substitute for employee
Question:When does the new exemption apply?
Natasha: It applies retroactively to October
30, 2011. So, if the four requirements I mentioned are met from
October 30, 2011 to present, then an employee could be entitled to
receive free or reduced tuition assistance for a family member
throughout the entire period on a non-taxable basis. However, it is
likely rare to have met all of the requirements during the entire
retroactive period and, therefore, very few employees would be
entitled to a tax refund.
Question:For organizations who have a tuition assistance
program in place, what should they be doing now so that their
employees can benefit from the exemption?
Natasha: They should review and tailor their
benefits program and policy manuals to comply with the
requirements. They should also review their employment agreements
to ensure that there are not provisions in them that would
disqualify employees from the new exemption. Moreover,
organizations will need to understand the different reporting
requirements, as the amount of assistance will no longer be part of
an employee's T4, but will be included on a T4A for the
recipient of the tuition assistance. For organizations who do have
employees who can benefit from the new exemption for the
retroactive period, there are specific filing requirements to
follow. I would be happy to provide further details to
organizations, as the action plan would need to be tailored on a
Question:Can you point out one last thing that organizations
will need to be careful about so their employees can pay less
Natasha: Yes, they need to be careful of
offering assistance based on different levels. For example,
providing a different amount of tuition assistance based on whether
an employee is full-time, part-time or casual or whether an
employee is an executive or not. Such tiered assistance may prompt
the CRA to perceive the benefit received as a substitute for
employee compensation. The structure of the tuition assistance is
important as all four criteria must be met.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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