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NOTE:
The tax regime applying to all fringe benefits is
highly complex, and professional advice should be
taken before planning any scheme designed to minimise
taxation. These notes are intended simply to give
a general overview and should not be relied upon as
a basis for action in any particular case.
Qualified
Tuition Reduction
A qualified
tuition reduction is tax-free. It is a reduction in
tuition that meets the following rules. Separate rules
apply to education below the graduate level and education
at the graduate level.
Education
below the graduate level - a tuition reduction
for education below the graduate level is tax free
if the reduction is provided by an educational institution
to its employees for their education or the education
of any person treated as an employee. It must not
represent a payment for services. Under this rule,
only the following are treated as employees.
- A
current employee,
- A
former employee who retired or left on disability,
- A
widow or widower of an individual who died while
an employee,
- A
widow or widower of a former employee who retired
or left on disability, or
- A
dependent child or spouse of any person listed above.
Child
of deceased or divorced parents - If both parents
have died, and if one of the parents qualified as
an employee (see above), their child, if under age
25, can qualify to exclude a tuition reduction from
income. A dependent child of divorced parents is treated
as the dependent of both parents.
Officers,
owners, and highly compensated employees - Qualified
tuition reductions apply to officers, owners, or highly
compensated employees if benefits are available to
employees on a nondiscriminatory basis. This means
that the tuition reduction benefits must be available
on substantially the same basis to each member of
a group of employees, defined under a reasonable classification
set up by the employer. It must not discriminate in
favour of owners, officers, or highly compensated
employees.
Graduate
education - A tuition reduction for graduate education
is tax free if the reduction is provided by an educational
institution to a graduate student who performs teaching
or research activities for that institution. The qualified
tuition reduction must be for education furnished
by that institution, and not represent payment for
services.
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