24 August 2006 Ruling 2006-0199701R3 - Scholarship

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 financial assistance to be paid by a company to individuals to attend university in Canada is taxable under paragraph 56(1)(n) of the Act when the company may offer the individual employment at the end of the study period, and should the individual refuse employment, the financial assistance would have to be repaid to the company?

Position: Unable to provide an advance income tax ruling.

Reasons: Paragraph 56(1)(n) of the Act does not apply to "amounts received in respect of, in the course of or by virtue of an office or employment". The determination of whether an employee-employer relationship is in existence is primarily a question of fact on which we cannot rule. Further, the request also asked that we rule that the Federal Budget proposal to exempt certain scholarships, fellowships or bursaries from income would apply. We are unable to rule on provisions of the Act that have not yet been enacted.

XXXXXXXXXX 									2006-019970

August 24, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

We are writing in response to your letter of July 28, 2006, requesting an advance income tax ruling letter on behalf of the above-noted company.

You requested that we rule that financial assistance to be paid by the company to individuals to attend university in Canada is taxable as a scholarship, fellowship or bursary pursuant to paragraph 56(1)(n) of the Income Tax Act (the "Act"). You indicated that the company may offer the individual employment at the end of the study period and should the individual refuse employment, the financial assistance would have to be repaid to the company.

For the following reasons, which are discussed in Information Circular, IC 70-6R5 Advance Income Tax Rulings, we are unable to provide you with the rulings requested and will return your deposit under separate cover:

(a) Paragraph 56(1)(n) of the Act does not apply to "amounts received in respect of, in the course of or by virtue of an office or employment". Such amounts are taxable under subsection 5(1) or paragraph 6(1)(a) of the Act. As noted in your letter, paragraph 8 of Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, does state that if an employer-employee relationship has not yet been established and an individual receives an award in consideration for undertaking to enter into employment with the person granting the award upon completion of the program of study, the amounts received are taxable under subparagraph 56(1)(n)(i) of the Act. However, the determination of whether an employee-employer relationship is in existence is primarily a question of fact (see paragraph 15(j) of IC 70-6R5).

(b) You also requested that we rule that the Federal Budget proposal to exempt certain scholarships, fellowships or bursaries from income would apply. We are unable to rule on provisions of the Act that have not yet been enacted (see paragraph 15(h) of IC 70-6R5).

Should you have any questions, please do not hesitate to contact me at 613-957-2049.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch