1 May 2003 External T.I. 2002-0174245 - TUITION FEE DISCOUNT SCHOLARSHIP OPTION

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 CCRA.

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

Principal Issues:

Can a "tuition fee discount" for spouses and children of employees of a university be received as a "tuition fee scholarship" by the student at the employees' option?

Position: No.

Reasons:

A tuition fees discount which is available to spouses and dependent children of all eligible employees is a taxable benefit to the employee and is not a scholarship or bursary that would be taxable in the hands of the student. Benefit is dependent upon the recipient's employment and is available to all employees in a specific group

XXXXXXXXXX 			2002-017424
G. Kauppinen
May 1, 2003

Dear XXXXXXXXXX:

Re: Reduction or elimination of tuition fees for spouses and children of employees

We are writing in reply to your letter dated October 31, 2002 regarding the above-noted subject.

We understand that students of XXXXXXXXXX who are the spouses and dependent children of eligible employees of XXXXXXXXXX at present receive a discount of XXXXXXXXXX% or XXXXXXXXXX% (depending on the employee group to which the employee belongs) from the required (actual) tuition. The amount of the discount is reported by the employee as a taxable benefit.

You wish to offer the eligible employees a choice of having the tuition discount reported as a taxable benefit in his or her hands or reported as a scholarship benefit taxable in the hands of the student.

Written confirmation of the consequences inherent in particular transactions are given by this Directorate 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 70-6R5, issued by the Canada Customs and Revenue Agency ("CCRA"). Consequently, we are providing the following comments which are of a general nature. These comments do not constitute an advance income tax ruling and accordingly are not binding on the CCRA. All publications referred to herein can be accessed on the CCRA website at the following address: http://ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

Our Comments

Where tuition discounts are provided to spouses and dependent children of all eligible employees, we are of the view that the tuition discounts would be considered as a taxable benefit to the eligible employee and included on his or her T4 as such. A change to the existing program to allow an employee to choose between a tuition discount and a tuition "scholarship", taxable in the student's hands is generally not possible in law.

Please refer to Interpretation Bulletin IT-75R3 entitled Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, in particular paragraph 8 therein, for a discussion of the difference between a tuition fee discount (taxable to an employee of the educational institution) and a scholarship or bursary to a student who is a child of an employee of the educational institution (taxable in the student's hands).

There is nothing to preclude the university from paying scholarships or bursaries to qualifying students in addition to offering "tuition discounts" to children of eligible employees. Normally however, a scholarship or bursary is made available to a limited number of eligible students and eligibility for the scholarship or bursary is generally based on such things as financial need or scholastic achievement, not on parent employment by the particular university.

If a university decides to establish a bursary or scholarship program which is restricted to spouses or dependent children of eligible employees, we would have to review all of the facts relating to the proposed program to determine how the amounts should be taxed under the Income Tax Act. This could be done through an application for an advance income tax ruling in the manner set out in Information Circular 70-6R5 described above.

We trust the foregoing comments are of assistance.

Yours truly,

Mickey Sarazin
Manager
Financial Industries Division
Income Tax Rulings Directorate