April 19, 2012
Ernst & Young Commentary
2012-015 — Proposed taxable benefit exception extends to elementary and secondary school tuition (Maureen De Lisser and Bob Neale, Toronto) [2012-04-17]
CRA income tax ruling document no.:2012-0435091M4
Document type: Ministerial Correspondence
In a recent ministerial correspondence, the Honourable Gael Shea, Minister of National Revenue, was asked how the proposed amendment to paragraph 6(1)(a) of the Income Tax Act(the "Act"), which excludes certain benefits received or enjoyed under an employer-provided educational assistance program, affects employees of independent elementary or secondary schools who receive tuition discounts for their children.
The ministerial correspondence confirms that if the proposed amendment is passed as currently worded, tuition discounts that an elementary or secondary school gives to its employees' family members will generally no longer be considered a taxable benefit for the employee. Moreover, if it is passed, the amendment would apply to employment benefits the employee received or enjoyed on or after October 31, 2011.
Background
Prior to 2007 it was CRA’s position that employer-provided scholarships and other education assistance for family members of employees was a taxable benefit to the employee. However, in response to a series of court cases dealing with the taxation of employer-provided post-secondary scholarships for family members of employees (e.g., The Queen v. Bartley et al., 2008 FCA 390) the CRA adopted a new administrative position for 2007 and later years. Under this new administrative policy, CRA accepts that when an employer provides a scholarship or bursary in respect of post-secondary education to the dependant of an employee, the dependant has received a benefit in the form of a scholarship or bursary, and the employee has not received a taxable benefit.
This change in administrative position did not extend to scholarships, bursaries, or tuition provided to employees' family members who attend elementary or secondary schools. In such cases, CRA continued to treat the fair market value of the scholarship, bursary, or tuition to be a taxable benefit to the employee. This administrative position is outlined in CRA rulings 2008-0296041E5 and 2009-0320591E5.
Proposed amendment
Under draft legislation released on 31 October 2011, a new exception is provided in paragraph 6(1)(a) of the Act to exclude from an employee’s income benefits received or enjoyed by a person (other than the employee) who does not deal at arm’s length with the employee, under an employer-provided educational assistance program. The proposed exception is broadly worded in that it is not restricted to post-secondary education benefits.
In particular, the draft legislation states:
(a) Value of benefits — the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer, or by a person who does not deal at arm's length with the taxpayer, in the year in respect of, in the course of, or by virtue of the taxpayer's office or employment, except any benefit
...
(vi) that is received or enjoyed by an individual other than the taxpayer under a program provided by the taxpayer's employer that is designed to assist individuals to further their education, if the taxpayer deals with the employer at arm's length and it is reasonable to conclude that the benefit is not a substitute for salary, wages or other remuneration of the taxpayer;
The proposed amendment applies to benefits received or enjoyed on or after 31 October 2011.
As indicated above, the ministerial correspondence confirms that if the proposed amendment is passed as currently worded, tuition discounts that an elementary or secondary school gives to its employees' family members will generally no longer be considered a taxable benefit for the employee. However, this exception does not apply if the discount may reasonably be viewed as a substitute for an employee's salary, wages, or other remuneration. In addition, the exception does not apply to non-arm’s length employees of the employer.
At the time of writing, the draft legislation has not yet been tabled in bill form, and CRA has not yet updated its website to reflect the position expressed in this ministerial correspondence (see