10 February 2000 External T.I. 1999-0008155 - TUITION FEE REDUCTION (NON-EMPLOYEES)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1. Is a reduction in tuition fees given to children of non-employees of a School that provides religious and secular education , taxable under 56(1)(n) of the Act?

2.Is the reduction taxable to the student, parent of the student or in some cases the related employee?

3.Is it appropriate to include an amount as a charitable donation?

Position TAKEN:

1. Yes, Taxable under 56(1)(n)
2.Taxable to the student
3.No

Reasons FOR POSITION TAKEN:

1.Discount is an "Amount"
2.Taxable under 56(1)(n)

3. Not in Accordance with IC 75-23.

XXXXXXXXXX 1999-000815
C. Tremblay
Attention: XXXXXXXXXX

February 10, 2000

Dear Sirs

Re: Paragraph 56(1)(n) of the Income Tax Act (the "Act")

This is in reply to your letter of November 12, 1999, wherein you request our comments on the application of paragraph 56(1)(n) of the Act in the situation described.

The situation relates to tuition fee reductions to be offered by a privately supported Christian school (the "School") to various groups of individuals.

The facts of the particular situation are outlined below:

1. The School is a not-for-profit organization, providing both secular (i.e. academic) and religious education.

2. The School operates in a building owned by, and forming part of, a Christian church. The School and the Church operate independently and have independent management. However, they have a common board comprised of elders of the Church.

3. The School provides both elementary and high school education to its students.

4. The School has a current policy of reducing the tuition fee charged to children of its staff to one-half of the fees charged to the general public. The tuition fee reduction has been reported annually as a taxable benefit to each employee. In addition, the full tuition fee (i.e. the amount actually paid plus the amount included in income as a taxable benefit) is used in calculating the charitable donation amount receipted to each employee. The receipted or donation portion of the amount "paid" to attend the school is determined in accordance with Information Circular IC 75-23.

The School is proposing to offer a tuition fee reduction (perhaps 25%) from the fees charged to the general public to the following individuals:

1. children of Christian missionaries who work for recognized missionary organizations;

2. children of Christian workers who work full-time for a church or para-church organization, including, but not limited to, the church in which the School is operated;

3. children of alumni of the School;

4. children of immediate family members of an employee; (that is, nieces, nephews, grandchildren, etc. of an employee);

5. children of members of the Governance Council of the School (Members of the Governance Council are volunteers and this Council reports to the Board of Directors of the Church); and

6. children of former and/or retired employees and former and/or retired Governance Council members.

In all of the above circumstances, the tuition fee reductions are being offered for the purpose of endorsing and enhancing the School's program, fulfilling the School's mission goals, and recognizing efforts of volunteers. The tuition fee reductions are not being offered to provide financial assistance to students and/or their parents who cannot afford to pay the normal tuition fees being charged.

Your specific questions regarding the tuition fee reductions are:

1. Is the reduction in tuition fees given to children of non-employees of the School taxable pursuant to paragraph 56(l)(n) of the Act?

2. If the reduction is taxable, is the amount taxable to the student, the parent of the student, or the related employee (in the case of #4 above)?

3. If the reduction is taxable, is it appropriate to include the taxable amount reported when calculating the portion of the amount "paid" which qualifies as a charitable donation as determined in accordance with IC 75-23.

Our Comments:

Written confirmation of the tax implications inherent in particular transactions are given by the Canada Customs and Revenue Agency (the "Agency") only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are therefore, of a general nature only, and are not binding on the Agency.

Generally, the difference between the normal tuition fee charged and the amount charged in respect of the student, other than a student who is a family member and a dependant of an employee (see comments below) would be viewed as a bursary that would, subject to the $500 exemption, be taxable in the hands of the student. In our view, the definition of bursary is broad enough to encompass any form of financial assistance to enable a student to pursue his or her education. Although a bursary usually applies to education at the post-secondary school level or higher, bursaries can be awarded for education below the post-secondary school level. While the parents of a student (and perhaps the whole family) may, in a sense, benefit in respect of a discount provided by the school, it is our view, consistent with the definition of bursary in paragraph 5 of Interpretation Bulletin IT-75R3, that the discount in tuition fees would constitute an "amount" that has been received by the student for the purposes of paragraph 56(1)(n) of the Act.

A reduction in tuition fees is generally taxable in the hands of an employee as employment income (as opposed to a bursary taxable in the hands of the student) where the child receiving the education and on whose behalf the discount is being offered by the School is a family member and a dependant of the employee. It is a question of fact whether a benefit is received in respect of, in the course of, or by virtue of an office or employment. In computing the income of a taxpayer for a taxation year from an office or employment, there shall be included the value of a benefit of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. There is no necessity that a benefit be received from the employee's immediate employer, and indeed, paragraph 6(1)(a) of the Act clearly encompasses benefits which may be received from a party other than the employer. Also, the wording in paragraph 6(1)(a) of the Act is broad enough to include certain benefits received by former or retired employees of a particular organization.

A gift at law is a voluntary transfer of property which a donor makes without expecting a benefit in return. A payment for the cost of a child's education in a religiously based school is generally not a gift. However, it is the Agency's policy to treat as a charitable gift a part of a parent's payment for instruction at a private elementary or secondary school which offers both secular (academic) and religious education. The part we treat as a gift is for religious education only. This exception is not law but merely an administrative position taken by the Agency in the specific circumstances set out in Information Circular 75-23, Tuition Fees and Charitable Donations Paid to Privately Supported Secular and Religious Schools. However, the Agency cannot extend this position to a tuition fee reduction unless the reduction is an amount included in the parent's income under paragraph 6(1)(a) of the Act. We enclose a copy of Registered Charities Newsletter - Summer 1996- No.6, which discusses, among others things, whether registered charities may issue donation tax receipts for tuition fees.

In closing, if you require further assistance, you should forward your concern to the local Taxation Services Office ("TSO"). Particularly, the TSO would be in a better position to assist you in determining the reporting requirements with respect to a specific situation that may arise.

We trust our comments are of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 4 -