Employers May Fund Education Tax Free

According to the Conference Board of Canada, organizations that are committed to a strong learning environment for their employees will perform better than their competitors.  In fact, there are a number of tax advantages, too.

Employees should be asking their current or employers and important question when negotiating compensation arrangements, especially at year end:   are you willing to invest in my ongoing education?  If so, it can be worth a lot more than money – it can make employees future-ready, and position firms for the emerging knowledge-based economy that focuses on high value client service.

The new Conference Board of Canada report, published earlier this month, found that about a third of Canadian organizations indicate they have a strong learning environment.  Half find it is moderate and about 16% say it’s weak.   In the tax and financial services, like medicine, pharmaceuticals, and IT industries, a strong learning culture is mandatory in a world so broadly affected by trend lines in a global economy.

Organizations with a high Learning Performance Index boast lower employee turnover rates, enhanced performance and engagement and more effective organizational leadership and succession management strategies¹.

The tax system can help to make the investment for each stakeholder to knowledge improvement more affordable.  CRA considers courses that employees take to upgrade or maintain their employment-related skills are taken primarily for the employer’s benefit.   Therefore, when those costs are paid for the employee – this includes family members who work in the business - there will be no taxable benefit is assessed.  The tax free benefit will extend to courses leading to a degree, diploma or certificate in a field related to an employee’s work.  The employee, however, is expected to resume employment for a reasonable amount of time after graduation.

Even courses which are not directly related to an employer’s specific business, but which are related to the business, may qualify as a tax fee benefit.   This can include stress management courses, first aid or language courses.  These are important skills in an economy in which technology disruptors are prevalent, and growth engines within firms are driven by highly skilled newcomers to Canada who may have initial difficulty with language barriers.

Other tax provisions are affected by these tax free benefits.  Employees who qualify for them, for example, will not be able to claim tuition, textbook or education tax credits on their personal tax return.   Also noteworthy, if courses are taken for an employee’s personal interest, or skills that are unrelated to the business, the tuition paid be the employer will be considered to be a taxable benefit.

Year-end tax planning, including employee benefits, will be covered at the Distinguished Advisor Workshop this fall.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.

¹The Learning Performance Index http://www.conferenceboard.ca/e-library/abstract.aspx?did=8144

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