26 May 2005 Ministerial Correspondence 2005-0123651M4 - Status Indian post secondary education assistance

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.

Principal Issues: Is a status Indian taxable on post secondary education assistance received under INAC's program?

Position: Generally yes

Reasons: The Indian Act exempts from taxation a status Indian's personal property situated on a reserve. PSE assistance will be situated on a reserve if paid pursuant to treaty (which INAC advises is not the case with respect to its program) or if sufficient connecting factors exist to connect the amount to a reserve. This measure has been delayed so that it will first have effect with respect to amounts paid in 2006. As with all students, the scholarship exemption of up to $3,000 and the education and tuition tax credits are available.

Signed on May 26, 2005

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your email regarding the possible taxation of post-secondary education assistance received by First Nations students. The office of the Honourable Andy Scott, Minister of Indian Affairs and Northern Development and Federal Interlocutor for Métis and Non-Status Indians, forwarded a copy of your correspondence to Minister McCallum on March 21, 2005.

A tax exemption exists for a Status Indian's personal property situated on a reserve. Since the courts have determined that income is personal property, a Status Indian student may not have to include post-secondary education assistance in income if the amount is situated on a reserve. One way for post-secondary education assistance to be situated on a reserve is if there are sufficient factors connecting it to a reserve. Alternatively, the Indian Act provides that personal property given to Indians or to a band under a treaty between a band and Her Majesty is always deemed to be situated on a reserve.

In the 1978 court case Greyeyes v. the Queen, the Government accepted as one of the facts prior to trial that education assistance had been received under a treaty. Based on this understanding, the Canada Revenue Agency (CRA) had for many years not required that post-secondary education assistance paid to Status Indians be reported on T4A slips. However, in 2003, the Department of Indian Affairs and Northern Development informed the CRA that post-secondary education assistance is provided as a matter of social policy and not as a general treaty right. It has further clarified this position to indicate that such assistance can only be viewed as a treaty right if the treaty specifically provides for the right to education at the post-secondary level.

The foregoing position has an effect on how the CRA, as administrator of the Income Tax Act, must tax such amounts. However, the requirement to report post-secondary assistance paid to Status Indians on a T4A slip has been delayed and will first apply to amounts paid in 2006. This delay will allow the federal government to work with the First Nations to ensure that they are informed about the relevant data to retain and that they are aware of the manner to report it on the T4A slips. During this time, the CRA will review whether there are appropriate connecting factors that may exist in certain situations for the post-secondary education assistance to be sufficiently connected to a reserve for the amounts to be tax-exempt when received by Status Indians.

The CRA recognizes that the education of First Nations students is a high priority for the First Nations and the Government of Canada. The CRA will ensure that post-secondary education assistance of a Status Indian that is connected to a reserve will continue to be tax exempt. If there is no connection to a reserve, the CRA will ensure that students have access to all of the information about their credit entitlements in order to offset or reduce any tax liability.

As a general rule, Canadians who receive post-secondary education assistance are required to include the assistance in the calculation of their income, subject to an exemption of up to $3,000. The Income Tax Act provides post-secondary students with a non-refundable tuition tax credit based on their tuition fees paid for the year. The Act also allows them to claim a non-refundable education tax credit based on an amount of $400 for each month that the student is enrolled as a full-time student in a qualifying educational program with a designated educational institution. As a result of the exemption and the non-refundable tax credits, including the basic personal amount, most Canadian students do not have to pay income tax on post-secondary education assistance. The proposed reporting requirements should not create any barriers to First Nations students completing their education.

I appreciate the opportunity to respond to your concerns on this important issue.

							Yours sincerely,

							Ed Gauthier
							Deputy Assistant Commissioner
							Tax and Regulatory Affairs
							Policy and Planning Branch
c.c.:  Minister's Office
Political Assistant

Renee Shields
948-5273
2005-012365
April 25, 2005