28 October 1996 External T.I. 9628375 - WORK IN EXCHANGE FOR TUITION FEE REDUCTION

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:

Work in Exchange for Tuition Fee Reduction

Position:

Taxable

Reasons:

Employment Relationship, departmental position regarding taxable benefits

									962837
XXXXXXXXXX							D. Zion

Attention: XXXXXXXXXX

October 28, 1996

Dear XXXXXXXXXX:

Re: Work in Exchange for a Tuition Fee Reduction

We are writing in response to your correspondence of August 21, 1996, in which you requested that we review a work program (the "program") offered by your client and provide our views regarding the taxability of amounts arising out of the program.

You have advised us that your client, a post-secondary education institution, has made available to its students employment opportunities for part-time work experience. The students perform a wide range of duties which the client would otherwise have to pay for such as grading papers, grounds keeping, cafeteria assistance, etc. Based on the limited information you have provided, it is our understanding that the students participating in the program have entered into a contract to provide services and receive payment in the form of reduced tuition fees for such services. The reduction to their tuition fees is to be based on the hourly rate for the work performed. Students who do not participate in the program are not entitled to this reduction of tuition fees. You have asked whether or not the offset to tuition fees provided to a participating student could be considered a scholarship, bursary or fellowship as contemplated in paragraph 56(1)(n) of the Act, given participation is voluntary and the amounts are credited to the education costs of the student.

Our Comments

As you have noted, we agree that since the terms "scholarship", "fellowship" and "bursary" are not defined in the Act, one must look to the meaning of these terms, as they are ordinarily defined and understood, in order to determine whether or not paragraph 56(1)(n) of the Act would apply in a particular factual situation.

Paragraph 5 of Interpretation Bulletin IT-75R3, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, describes scholarships and bursaries in part "as amounts paid or benefits given to students to enable them to pursue their education." It states that a student is not normally expected to do specific work for the payer in exchange for the scholarship or bursary. This comment is consistent with the ordinary meaning and understanding of these terms. Paragraphs 13 and 14 of this same bulletin go on to discuss the situation when a student may agree to perform certain duties in exchange for financial assistance, and comments that a bursary and amounts received for a student assistantship are classified separately as either employment income under subsection 5(1) of the Act or other income under paragraph 56(1)(n), depending on the circumstances.

In view of the foregoing, it is our opinion that the offset of the value of the services provided by the students against tuition fees in this situation cannot be considered to be a scholarship, fellowship or bursary received by the students under paragraph 56(1)(n) of the Act. When an employer provides a benefit to its employees at a cost to the employee that is less than the fair market value, a benefit is conferred on the employee that is taxable under paragraph 6(1)(a) of the Act unless there is a specific legislative exemption. Accordingly, any direct payment, or reduction, of the tuition fees by the post-secondary education institution is considered a taxable benefit in the hands of the student/employees in the year received or enjoyed as opposed to the time at which the services were provided.

Please note however, that the students will likely be entitled to a tuition tax credit to the extent of the tuition fee reduction included in their income, as well as any amount they have actually paid, provided that they otherwise qualify for the credit. This tax credit will offset, to some extent, the additional tax payable as a result of the income inclusion.

We trust our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch