CRA recently released a letter which discussed whether scholarship funds received by an employee are taxable as employment income under subsections 5(1) or 6(1) of the Income Tax Act. CRA examined a situation where a registered charity (the “Foundation”) received a donation from an unrelated person (the “Donor”). The purpose of the Foundation was to raise and maintain funds for an organization and under the terms of the donation agreement between the Foundation and the Donor, the Foundation created a scholarship for employees of the organization pursuing post-graduate degrees in specific areas of study.
According to CRA, generally where a scholarship is available only to employees of a particular employer, it will constitute an amount received in respect of, in the course of, or by virtue of an office or employment and will be taxable as employment income.
However, when scholarships are provided for courses/training to maintain or upgrade employment-related skills and these are for the primary benefit of the employer, provided that the employee is also expected to resume his or her employment for a reasonable period of time after completion of the training, then the scholarship funds received by the employees will not be taxable as employment income. This will also apply if the courses/training are provided by an individual other than the employer but the related funding is still received in respect of, in the course of, or by virtue of the employee’s employment (such as in this case).
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.