30 June 2004 Internal T.I. 2004-0078631I7 - Tuition&Education Tax Credit of Status Indian

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: Whether 81(1)(a) exemption of post-secondary education assistance amounts prevents the student from claiming the tuition and education tax credits. Discussion of taxability and T4A reporting requirement for post-secondary education assistance for status Indians.

Position: General discussion of sections 118.5 and 118.6.

Reasons: Receiving post-secondary education assistance that is exempt from tax under paragraph 81(1)(a), does not prevent the tuition fees from qualifying for the tuition or education tax credits. However, it is a question of fact as to whether the tuition fees are described in 118.5(1)(a)(ii) to (v) and excluded from eligible tuition fees. It is also a question of fact as to whether the assistance qualifies under paragraph (a)(i) of the definition of "qualifying educational program" in subsection 118.6(1) as "an amount received [...] as a scholarship, fellowship or bursary or a prize for achievement in a field of endeavour ordinarily carried on by the student" so as not to be excluded under paragraph (a) of that definition.

June 30, 2004

	TORONTO CALL CENTRE		HEADQUARTERS
				Income Tax Rulings
	Attention:  Ryan Ward			  Directorate
				Roxane Brazeau-LeBlond, CA
(613) 957-2141

				2004-007863

Tuition and Education Tax Credits and Status Indians

This is in response to your electronic correspondence of May 28, 2004 and further to our June 24, 2004 conversation (Brazeau-LeBlond/Ward) regarding the availability of the tuition and education tax credits for a status Indian student whose college tuition has been paid for by her Indian band. You have also asked us to comment on the taxability to the student of the amount of tuition paid on her behalf by the Indian band as well as the T4A reporting requirements for the Indian band.

Availability of Tuition Tax Credit

Subsection 118.5(1) of the Income Tax Act (the "Act") sets out the circumstances under which an individual may claim a tuition tax credit for tuition fees paid to certain educational institutions in or outside Canada. In general terms, the amount of the tuition tax credit is determined by multiplying the appropriate percentage for the year by the amount of fees for the individual's tuition paid for the year to a qualifying educational institution.

However, if the fees paid for the individual's tuition are specifically identified within the exceptions described in subparagraphs 118.5(1)(a)(ii.1) through (v) of the Act, or are ancillary fees specifically excluded under paragraph 118.5(3)(c) or (d) of the Act, the amount paid would not be eligible for the credit.

Under the paragraph 118.5(1)(a)(iii) exception, tuition fees that are paid on an individual's behalf by the individual's employer and that are not included in the individual's income are not eligible for the credit. Therefore, tuition fees paid by an employer on behalf of a status Indian employee would fall within the subparagraph 118.5(1)(a)(iii) exception if the tuition fees received by the employee were excluded from income by virtue of paragraph 81(1)(a) of the Act. However, fees paid by an Indian band on behalf of an individual who was not an employee of the band would not fall within this exception.

It would be a question of fact as to whether a student was entitled to receive a reimbursement or assistance under a program of Her Majesty in the Right of Canada or a province either designed to facilitate the entry or re-entry of workers into the work force as described in the exception in subparagraph 118.5(1)(a)(iii.1) of the Act or designed to assist athletes as described in the subparagraph 118.5(1)(a)(v) exception.

In our view, the fact that a bursary received by a status Indian student is exempt from tax under paragraph 81(1)(a) of the Act will not bring the tuition fees within the exceptions provided in subparagraph 118.5(1)(a)(iii) of the Act, unless the bursary is received in the student's capacity as an employee of the Indian band. Therefore, unless the educational assistance falls within any of the other exceptions, or the tuition fees are otherwise not eligible, the status Indian would be entitled to claim the tuition tax credit pursuant to subsection 118.5(1) of the Act.

Availability of Education Tax Credit

Paragraph (a) of the definition qualifying educational program in subsection 118.6(1) of the Act serves to deny the education tax credit if the student receives, from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement, except as provided in subparagraphs (a)(i) to (iii) of that definition. It is a question of fact as to whether a particular post-secondary education assistance payment would fit within any of these exceptions.

For instance, subparagraph (a)(i) of the definition qualifying educational program in subsection 118.6(1) of the Act excepts assistance received as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the student. Hence, students receiving educational assistance from their Indian band that fall within this exception would qualify for the education tax credit. To determine whether a particular post-secondary education assistance payment would fit within the description of scholarship, fellowship, bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the student, please refer to the current version of IT-75, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance which discusses the taxation and nature of such terms.

Taxability of Amounts Paid on Behalf of Status Indian Student

Paragraph 56(1)(n) of the Act requires the inclusion into income of certain scholarships, bursaries and fellowships, net of what may be referred to as the scholarship exemption described in subsection 56(3) of the Act. A bursary is defined in Webster's Third International Dictionary as "a sum or varying amount given or granted to a needy student". In our view, the definition of a bursary is broad enough to encompass almost any form of financial assistance paid to a student to enable a student to pursue his or her education, including a payment based on the means or needs of the student. This can include the value of ancillary assistance such as travel assistance, lodging, books or equipment, dependant care, and so on.

A bursary usually applies to education at the post-secondary school level or higher but there are circumstances where bursaries can be awarded for education below the post-secondary school level. Scholarships and bursaries ordinarily assist the student in proceeding towards a degree, diploma, or other certificate of graduation. They may apply to academic disciplines or to trades (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. It will be a question of fact based on a review of all relevant circumstances as to whether a particular individual has received a scholarship or bursary that is to be included in the individual's income under paragraph 56(1)(n) of the Act.

Paragraph 200(2)(a) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment as or on account of, or who confers a benefit or allocates an amount that is, a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the recipient thereof (other than a prize prescribed by section 7700) to report the amount on a T4A slip.

When a scholarship or bursary is received by status Indians, paragraph 81(1)(a) of the Act and section 87 of the Indian Act may provide a tax exemption if the income is considered an Indian's personal property situated on a reserve. Paragraph 90(1)(b) of the Indian Act provides that for purposes of section 87 of that Act, personal property that was given to Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on a reserve.

The Canada Revenue Agency's ("the CRA's") current position in respect of the tax treatment of post-secondary education assistance for status Indians is based on the Greyeyes case (78 DTC 6043). In the statement of agreed facts, the parties consented that the funds were received by Ms. Greyeyes pursuant to an agreement and treaty between her Band and Ottawa and specifically pursuant to an agreement to assist band members in their education in compliance with the obligations of the Federal Government under Treaty No. 6.

The CRA is currently reviewing whether its reliance on this court case is justified for all post-secondary education assistance payments to status Indians. However, pending the completion of this review, post-secondary education assistance payments such as a scholarship or bursary which may be paid through a First Nation or directly from Indian and Northern Affairs Canada to or on behalf of a status Indian student before January 1, 2006 will continue to be tax-exempt.

Whether post-secondary education assistance paid is considered exempt or not from income tax does not affect the reporting requirements under paragraph 200(2)(a) of the Regulations. However, pending the CRA's review of post-secondary education payments for status Indians, the CRA's practice to not require the payor of these scholarships or bursaries to issue the T4A slips to status Indian students is similarly extended to payments made before January 1, 2006.

We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch