A look at tax questions for scholarships and bursaries, how to handle educational allowances
Taxability questions about scholarships and bursaries
Question: We are offering scholarships and bursaries
to the children of our employees to help them attend
post-secondary educational institutions. Is this a taxable
benefit for the employees?
Answer: No, the Canada Revenue Agency does not consider it to be a taxable benefit unless the scholarship or bursary is being provided as a substitute for paying the employees salary, wages or other remuneration or the employer does not deal with the employees at arm’s length.
Employers are required to report the fair market value of the scholarship or bursary on a T4A slip for the employee’s child. For Revenu Québec, report it in box (O) of an RL-1 for the family member receiving the scholarship or bursary.
The CRA says that individuals may be able to exclude the amount from their income when filing a personal tax return if they meet certain criteria. It advises payroll practitioners to refer employees to its General Income Tax and Benefit Guide (available on the CRA’s website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html) if the employee or family member have questions.
This policy also applies to educational institutions that offer free tuition to their employees’ family members.
How to properly handle educational allowances
Question: We are now offering allowances to employees who sign up their children for tutoring or educational enrichment
programs with a third-party provider. We do not run the
programs and are not affiliated with them. The employees
must provide us with receipts to qualify for the allowance.
Is there a specific dollar limit that applies for these types
of allowances before they are taxable?
ANSWER: Regardless of the amount paid, the allowance is a taxable benefit to the employees and must be included in their income for calculating source deductions. It is pensionable, insurable and taxable. Do not include the GST/HST in the value of the allowance.
The only exception applies for education allowances that employers provide when an employee and the employee’s family have to live away from their home in a specific location for work and the schools there do not meet their children’s educational requirements. In this situation, the CRA says the allowance may not be taxable if the following conditions apply:
• the education provided is in English or French, whichever one the employee primarily uses;
• the school is the closest suitable one available in that language;
• the employee’s child is a full-time student at the school; and
• the amount the employer provides for the education is reasonable (the CRA does not define "reasonable").
Rules for keeping employment standards records
Question: I want to purge some of our old payroll records.
I know that for Canada/Quebec Pension Plan, Employment
Insurance Quebec Parental Insurance Plan and income tax
we have to keep records for six years after the taxation year
to which they relate. Does this rule also apply for employment
/labour standards records?
ANSWER: No, the rules covering labour standards records are governed by each province’s and territory’s labour standards laws and by the Canada Labour Code for federally regulated employers. The record retention requirements are as follows:
Canada Labour Code: Employers must keep records for three years after work is performed. Records relating to the dates employment began and ended must be kept for a minimum of 36 months after termination of employment.
Alberta: Employers must keep records for three years after they make the record.
British Columbia: Employers must keep records for two years after termination of employment.
Manitoba: Employers must keep records for three years after they make the record. Records of an employee’s date of birth, address and wage changes must be kept for three years after termination.
New Brunswick: Employers must keep records for a minimum of 36 months after the employee performs the work for which the employer made the record.
Newfoundland and Labrador: Employers must keep records for four years from the date of the last entry in the record for the employee.
Northwest Territories: Employers must keep records for two years after they make the record.
Nova Scotia: Employers must keep records for three years after the work for which the employer made the record is performed.
Nunavut: Employers must keep records for two years after they make the record.
Ontario: There are a number of different record-keeping requirements for employers:
• records covering the number of hours the employee works each day or week: three years after work is performed;
• records pertaining to excess hours and averaging hours: three years after the last day the employee did work under the agreement;
• records pertaining to leaves: three years after the leave expires;
• records covering the employee’s name, address and the date he or she began employment with the employer: three years after termination of employment;
• records relating to the employee’s date of birth: three years after the employee’s 18th birthday or the employee’s employment terminates, whichever comes first;
• records covering information provided in pay statements: three years after the employer gave the information to the employee; and
• specified records relating to vacations: three years after employers make the record.
For more information, contact Ontario Employment Standards.
Prince Edward Island: Employers must keep records for 36 months after the employee performs the work for which the employer made the record.
Quebec: Employers must keep records for three years after the employee performs the work for which the employer made the record.
Saskatchewan: Employers must keep the most recent five years of records for current employees. Upon termination, employers must keep records for an extra two years after the day employment ends.
Yukon: Employers must keep records for 12 months after the employee performs the work for which the employer made the record.
Note: Even though employers are not required to keep labour standards records for as long as Canada Revenue Agency records, for best practices, it may be an idea worth considering.
