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: 1. Are bursaries awarded to Canadian students to attend a seminary in the United States taxable? 2.What are the bursary payor's reporting and withholding requirements?
Position: 1. Question of fact
2. The Payer must report the payments to CRA by filing a T4A information return and must provide a T4A slip to the recipient. No tax is required to be withheld on bursaries.
Reasons: 1. Although a bursary must be included in income pursuant to paragraph 56(1)(n), the amount to be included is net of the scholarship exemption. Here, it is unknown how much the scholarship exemption would be because it is unclear whether the students would be eligible for the education tax credit. Certain factual determinations would have to be made, including whether the seminary qualifies as a "university" and whether any particular student is in receipt of a benefit in respect of free tuition.
2. Reading of subsection 200(2) of the Regulations.
September 24, 2007
Hamilton TSO HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Gilbert Noorduyn Joy Bertram, B.Comm, CGA, CPA (vt) (613) 957-8954
2007-024218
Payments for Theological Studies
We are writing in response to your e-mail of June 26, 2007, regarding the tax treatment of and reporting requirements associated with financial assistance paid to Canadian students to attend a full-time program of theological studies at a seminary in the United States.
A Canadian registered charity (the "Organization"), will provide non-repayable financial assistance to students to cover tuition and certain living expenses. The assistance will be funded by donations to the Organization originating from within Canada. The students will be attending the XXXXXXXXXX (the "Seminary"), an institution located in XXXXXXXXXX. The Seminary offers programs that it describes as a XXXXXXXXXX.
The determination of the income tax treatment of payments such as those described in this letter involves a question of fact that can only be determined after reviewing all of the relevant documentation and agreements related to the program. However, based on the limited information provided to us, we are prepared to offer the following general comments, which may be of assistance.
In our view, the assistance provided by the Organization to the students falls within the meaning of "bursary" as contemplated by paragraph 56(1)(n) of the Income Tax Act (the "Act"). Although the term "bursary" is not defined in the Act, the Canada Revenue Agency (the "CRA") takes the view that its meaning is broad enough to encompass almost any form of financial assistance paid to a student to enable the student to pursue his or her education. This view is also consistent with the decision of the Federal Court of Appeal in Simser v The Queen, 2005 DTC 5001. For more information you may wish to consult IT-75R4 Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance.
Given that the payment qualifies as a bursary, the Organization will be responsible for filing a T4A information return with the CRA and providing the students with a T4A slip pursuant to subsection 200(2) of the Income Tax Regulations. A bursary does not fall within one of the types of payments listed in subsection 153(1) of the Act, accordingly as noted in ¶48 of IT-75R4, bursaries are not subject to tax withholdings.
With respect to the taxation implications for a recipient, paragraph 56(1)(n) of the Act requires the recipient of a bursary to include in income the amount of the bursary, less the scholarship exemption, as determined by subsection 56(3) of the Act. Where the bursary is received in connection with the individual's enrolment in an educational program eligible for the education tax credit, the full amount will be exempt. In any other case, the scholarship exemption will be $500. Notwithstanding that a particular student may be eligible for a full exemption, the payor of a bursary is still required to file the T4A information return and provide the student with a T4A slip.
The determination as to whether a student is eligible for an education tax credit and therefore a full scholarship exemption under subparagraph 56(1)(n)(ii) is a question of fact and is discussed in detail in Interpretation Bulletin IT-515R2, "Education Tax Credit". The education tax credit is available where an individual is enrolled at a "designated educational institution" in a "qualifying educational program" or, in the case of a part-time student, in a "specified educational program", as those terms are defined in subsection 118.6(1) of the Act. We understand that the students in question will be engaged in full-time studies, so we do not propose to discuss specified educational programs. Essentially, a qualifying educational program must be at the post-secondary level, must have a duration of not less than three consecutive weeks and must require the student to spend not less than ten hours per week on course work throughout the program's duration.
As mentioned above, to be eligible for the education tax credit, the qualifying educational program must be offered by a designated educational institution. Given that the students in question move to XXXXXXXXXX during their studies, for the Seminary to be a designated educational institution, it must be "a university ... at which the individual ... was enrolled in a course, of not less than 13 consecutive weeks duration, leading to a degree", as set out in paragraph (b) of the definition in subsection 118.6(1) of the Act. The Individual Returns and Payments Processing Directorate of the CRA conducts the determination of whether a foreign educational institution qualifies as a university for purposes of sections 118.1, 118.5 and 118.6 of the Act. We understand that the Seminary requested a determination for purposes of charitable donations under section 118.1 of the Act. After preliminary review, its inclusion in Schedule VIII was denied because insufficient reference time periods existed to determine whether its student body ordinarily includes students from Canada. Although the Seminary did not pursue a determination for purposes of either section 118.5 or 118.6 of the Act, it can do so by contacting Ms. Judy Marsh, Validation Section, IRPPD, Canada Revenue Agency at 1-613-946-1972.
We trust that these comments will be of assistance.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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