New Tax Rules For Employer-Paid Tuition Fees and Scholarship
If it’s paid for the employee…
When you, as an employer, pay for the tuition fees, or gave scholarships and/or bursaries to an employee, the CRA sees it as another way of paying your employees for their services. These amounts paid may or may not be taxable to the employee. The CRA has come up with 3 categories to help you to determine whether it is tax-free or not.
1. Specific employment-related training
This category refers to courses taken to upgrade or maintain skills that are related to the employee’s current job. However, it must be mainly for your benefit and this is under the assumption that the employee will continue to work for you after he/she completes the course. Tuitions paid for these courses are tax-free to the employee.
2. General employment-related training
This category refers to business-related courses that although is not directly related to the type of business you are doing, but it is still being taken mainly for your benefit. Fees paid for these courses are tax-free also to the employee.
3. Personal interest training
This refers to courses for personal interest or technical skills that are NOT related to your business and are taken mainly for the benefit of the employee. The employee will need to pay taxes on such fees.
If the fees are taxable to the employee then the amount needs to be included in the employee’s tax return the year you paid.
If the tuition fees are NOT taxable, then the employee will not be able to claim the non-refundable tuition or education tax credit on the fees. If this is the case, you should inform the employee about the situation.
If you are giving a student a scholarship or bursary on the condition that he/she will continue to work for you, the amounts are included in the student’s employment income. This is so, regardless of during or right after the employment.
If the employee meets the criteria to claim the education tax credit, then do not calculate deductions based on the scholarships, fellowships, or bursaries given. However, these amounts should still be reported on the T4 slip of the employee. Please note that the income may be exempted from tax if the employee qualifies for such exemption.
What if it’s paid for their family members …
If your company offers to pay for the tuition, scholarships and/or bursaries of the family member of the employee, then you should be aware of the following new rules.
Starting 2007, such scholarships should not be reported on the employee’s T4 slip, instead it is on the T4A slip of the family member being paid for. Also, the general market cost of the tuition fees, books and supplies paid by you should also be in the employee’s family member’s T4A slip instead of the employee’s T4 slip.
What If GST/HST are included in the fees…
If the tuitions fees paid by you includes GST/HST, the GST should be included in the value of benefit being reported.
Do payroll deductions apply to these amounts?
If the benefit is taxable to the employee, then it is also pensionable. Which means CPP contributions and income tax should be deducted off it.
If you paid for the benefit in cash, it is also insurable, which means EI premiums should be deducted. It was not paid with cash, then it is not insurable, in other words, do not deduct EI premiums.
If you have any questions or comments, please do not hesitate in calling us at (416) 495-1098, we will be happy to anwser them.