This is to announce that there will be a change to the tax treatment of the Staff Dependent Tuition Waiver policy effective January 1, 2007.
Under the provisions of the current policy, eligible dependants of full-time staff members or pensioners pay only one-third of the tuition fees. The remaining two-thirds is deemed to be a taxable benefit. Under the current policy, that amount can be taxed to the student, provided that the student meets certain academic requirements, or taxed to the employee/pensioner. When it is taxed to the student, the government deems this to be a scholarship for tax purposes.
The University has received a notice from the Canada Revenue Agency (CRA) regarding the tax treatment of subsidized or free tuition. The CRA deems that even if a benefit was received directly by another person, such as a dependant, that dependant received it principally by virtue of the employee's employment. Therefore, the value of the benefit must be reported as employment income on the employee's T4.
Under certain circumstances, the CRA will accept that some employer-provided scholarships for dependants of employees can be included in the income of the dependant. These circumstances include the following:
If the fee reduction is made to a certain number of dependants, and based solely on their academic accomplishments, which must be higher than the minimum entrance requirements for most post-secondary institutions, and;
There is a limited number of scholarships provided, such that the number chosen is low enough that most employees could not expect their dependants to be chosen;
In addition, in making the determination, the CRA will also consider if the selection was made by a board or committee or by persons not connected with the employer.
In these cases, since the scholarship is based mostly on the merit of the dependant, rather than the employee's relationship with the employer, it is income to the dependant and must be reported on the dependant's T4A slip.
In summary, an educational institution that provides free or subsidized tuition to employees' dependants must include the benefit's value in the employee's income unless it can be shown that the dependant qualifies to receive a scholarship as part of a limited selection plan.
Our current policy does not meet those definitions; therefore, effective January 1, 2007, the policy will be amended so that the amount of the reduction in tuition fees for dependants will be taxable to the employee/pensioner. The Staff Benefits Advisory Committee will be reviewing the situation to determine if the appropriate mechanisms can be put in place to provide a benefit that is taxable to the student under the guidelines outlined by the CRA.
Any questions concerning the above should be addressed to the Benefits office at 398-4900.
Robert Savoie, Executive Director