11 February 2008 External T.I. 2007-0248181E5 - Scholarships

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 T4As are required to be issued for scholarships.

Position: Yes

Reasons: Under paragraph 200(2)(a) of the Regulations, every payer of a scholarship must file a T4A Summary and related T4A Supplementaries to report such amounts. However, under CRA's administrative position, a payer is only required to issue a T4A slip when the total of such payments exceeds $500 or when income taxes are withheld from such payments.

								2007-024818
XXXXXXXXXX 							Charles Rafuse
								613-247-9237
February 11, 2008

Dear XXXXXXXXXX :

Re: Scholarships

This is in reply to your email of August 8, 2007, concerning whether T4A Supplementaries (slips) are required to be issued for scholarships that you plan to award to certain grade 12 graduate students.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is 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, Advance Income Tax Rulings, dated May 17, 2002. This Circular and the other publications referred to in this letter are available on our website at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nevertheless, we are prepared to provide the general comments set out below.

Paragraph 56(1)(n) of the Income Tax Act (Act) generally includes in income the total of all amounts, in excess of an exemption amount under subsection 56(3) of the Act, received in the year as or on account of:

• scholarship;
• fellowship,
• bursary; or
• prize for an achievement in a field of endeavour ordinarily carried on by the taxpayer (other than a prescribed prize).

The above terms and the exemption are discussed in detail in Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance. The nature of an amount received by a student in a particular situation is a question of fact to be resolved by a review of the circumstances of the situation.

Subsection 56(3) provides an annual exemption. For each taxation year, only one subsection 56(3) exemption is available to be applied against all income included under subparagraph 56(1)(n)(i).

Subsection 56(3) provides an exemption for scholarship, fellowship or bursary amounts received by an individual in connection with the individual's enrolment at a designated educational institution (e.g., a university or college) in a program in respect of which the individual may claim the education tax credit (ETC). This annual exemption used to apply only in the year in which an individual could claim the ETC. Subsection 56(3) was recently amended by Bill C-28, Royal Assent, December 14, 2007, to provide that this exemption will also be available if the scholarship, fellowship or bursary is received in the year immediately preceding or following the year in which the individual can claim the ETC. The ETC is discussed in Interpretation Bulletin IT-515R2, Education Tax Credit.

Subsection 56(3) was also recently amended by the above-mentioned Bill C-28 to provide an annual exemption for a scholarship or bursary received by an individual in connection with the individual's enrolment in an elementary or secondary school.

The mentioned amendments to subsection 56(3) apply to the 2007 and subsequent taxation years.

Under paragraph 200(2)(a) of the Income Tax Regulations, every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) must file a T4A Summary and related T4A Supplementaries to report such amounts. Nonetheless, under CRA's administrative position, a payer is only required to issue a T4A slip when the total of such payments exceeds $500 or when income taxes are withheld from such payments. In this regard, it should be noted that there is no statutory requirement to withhold income taxes on the payment of amounts described in paragraph 56(1)(n) of the Act. It should also be noted that the exemption under subsection 56(3) of the Act does not affect the requirement to file T4A slips, i.e., T4A slips are required to be filed even when the exemption exceeds the amount of the education grant.

You can obtain more information on the reporting requirements in the Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form.

We trust this information is helpful.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Bra