28 February 2001 External T.I. 2000-0061815 - free tuition

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:

Is the value of benefits in the form of free tuition, room, board, employment, etc. received by Canadian residents to attend university outside Canada and to play university sports taxable?

Position TAKEN:

Yes. General comments provided.

Reasons FOR POSITION TAKEN:

See IT-75R3. Consistent with earlier positions.

XXXXXXXXXX 2000-006181
T. Young, CA
February 28, 2001

Dear XXXXXXXXXX:

Re: Taxation of Athletic Scholarships

This is in reply to your letter of December 5, 2000, requesting our views on the income tax treatment of benefits received by individuals in the form of athletic scholarships and similar benefits from universities in the United States (US).

In your letter, you state that Canadian students are being offered various benefits in order to encourage them to attend US universities and participate in their athletic programs. These benefits may include scholarships, bursaries, loans, free tuition, free housing, free meals, sports equipment and employment at the university.

You provided an example where Jane Doe receives a package worth $25,000 (US) to attend Cornell University as long as she plays hockey for the university. You asked if the student's parent or other supporting individual is required to report this benefit on a Canadian income tax return.

Our Comments

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4 dated January 29, 2001, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to provide the following general comments, which may be assistance to you. Our comments are based on the assumption that the student remains a resident of Canada for income tax purposes.

The Canada Customs and Revenue Agency's general position on the taxation of scholarships, bursaries and similar benefits is included in interpretation bulletin IT-75R3, "Scholarships, Fellowships, Bursaries, Prizes, and Research Grants" (copy enclosed). Paragraph 56(1)(n) of the Income Tax Act (the "Act") requires that students include in income all amounts received and the value of all benefits received to enable them to pursue their education. This would generally include, but not be limited to, items such as scholarships, bursaries, prizes, and the provision of free tuition, meals and lodging. The provision of hockey equipment would also be taxable if the student is being provided with equipment that the student would then own.

For each taxation year, the first $500 of any scholarships, bursaries or other benefits described in paragraph 56(1)(n) of the Act is exempt from taxation. Under legislative proposals dated December 21, 2000, an additional $2,500 per year after 1999 is exempt from taxation in connection with programs for which the student is entitled to the education tax credit. The requirements for claiming the education tax credit are discussed in detail in interpretation bulletin IT-515R2 "Education Tax Credit" (copy enclosed).

The rules for the tuition tax credit are discussed in detail in interpretation bulletin IT-516R2, "Tuition Tax Credit" (copy enclosed). As noted in paragraph 16 of the interpretation bulletin, generally, a recipient of tuition provided at no charge by an educational institution is not entitled to claim a tuition tax credit for the value of the tuition since no fees are paid to the educational institution. On the other hand, as noted in paragraph 17 of the interpretation bulletin, a tuition tax credit may be claimed for fees paid out of prizes, scholarships, fellowships or bursaries providing that all of the other requirements for claiming the credit are satisfied.

In cases where a university provides employment to students as part of the package to attract student athletes, any income from that employment would, generally, be fully taxable as ordinary employment income of the student.

You noted in your letter that, as an employee of XXXXXXXXXX, you are eligible to receive free tuition for your family members and that you would be required to pay taxes on that benefit should your wife or children take advantage of that staff benefit. We note that the reason the benefit is taxable in your hands and not in one of your family members' hands, is that it is received because of your employment at the university.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 3 -