When employer-funded education is 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 an 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.

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The new Conference Board of Canada report, published in early September, 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, 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 strategies.*

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 that are not directly related to an employer’s specific business, but that are related to the business, may qualify as a tax-free 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 is that if courses are taken for an employee’s personal interest, or for skills that are unrelated to the business, the tuition paid be the employer will be considered to be a taxable benefit.

* Vachon, Donna Burnett, and Hall, Colin. “The Learning Performance Index: Profiling Strong and Dynamic Learning Environments.” Donna Burnett Vachon, Colin Hall. The Conference Board of Canada. September 1, 2016.

Courtesy Fundata Canada Inc. © 2016. Evelyn Jacks is president of Knowledge Bureau. This article originally appeared in the Knowledge Bureau Report. Reprinted with permission. All rights reserved.

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