21 March 2014 External T.I. 2013-0513061E5 - Tuition assistance

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: (i) Whether assistance provided by a private XXXXXXXXXX school (elementary and high school) would be taxable to the student and whether the school is required to provide a T4A to these students?
(ii) Would discounted tuition provided to faculty member's children be a taxable benefit to the faculty member?

Position: (i) The types of assistance provided would likely be considered bursaries under 56(1)(n) and would therefore be taxable to the student to the extent that the amount received exceeds the individual's scholarship exemption. The school would be required to provide T4A's for the amount of assistance provided.
(ii) No.

Reasons: (i) Where the primary purpose of the assistance provided is to enable an individual to pursue an education, the amount of the assistance would be considered to be a bursary.
(ii) Subparagraph 6(1)(a)(vi) excludes amounts provided to a family member of a taxpayer by the taxpayer's employer that assists the family member in furthering their education

XXXXXXXXXX
2013-051306
E.Wirag
(613) 957-2090

March 21, 2014

Dear XXXXXXXXXX,

We are replying to your email of November 20, 2013, in which you asked for our comments regarding tuition assistance provided to students of a private XXXXXXXXXX school (elementary and high school). In particular, you have asked whether assistance provided would be taxable to the student and whether the school is required to provide a T4A to the student in the following situations:

(i) The assistance is provided in the form of reduced tuition fees where the student's parents have applied for the reduction based on their financial situation;

(ii) The assistance is provided in the form of a reduction of outstanding tuition fees, again due to the parents' financial situation;

(iii) A scholarship is provided to the student;

(iv) A faculty member's children are provided with discounted tuition to the school.

You have also asked for clarification of whether this particular situation would result in a taxable benefit to the faculty member.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Paragraph 56(1)(n) of the Act requires that students include in income all amounts received as or on account of a scholarship, bursary, or certain prizes for achievement to the extent that the total of these amounts exceed the scholarship exemption available in subsection 56(3) of the Act.

Subsection 56(3) of the Act permits the full amount of a scholarship, fellowship or bursary to be excluded from income if the particular award is received in connection with the taxpayer's enrolment in an elementary or secondary school educational program.

Although the term "bursary" is not defined in the Act, it has been a long-standing position of the Canada Revenue Agency that the definition of bursary is broad enough to encompass any form of financial assistance that enables a student to pursue his or her education. Therefore to qualify as a bursary, the primary purpose of the assistance must be to assist an individual with furthering his or her education.

In our view, a reduction in tuition fees for a student whose parents are in need of financial assistance would likely be considered to be a bursary. It is a question of fact whether a reduction of outstanding tuition fees would be considered to enable a student to pursue his or her education. If the nature of the assistance meets this requirement, the amount could be considered a bursary.

In situations where a family member (i.e., the student) of a taxpayer (e.g., the parent) is provided a benefit by the taxpayer's employer that assists the family member in furthering their education, subparagraph 6(1)(a)(vi) of the Act states that the benefit will not be considered a taxable benefit to the taxpayer. Such benefits could include scholarships or bursaries (e.g., free or reduced tuition fees). The taxpayer and the employer must deal at arm's length and it must be reasonable to conclude that the amount is not a substitute for salary, wages or other remuneration of the taxpayer. Subparagraph 6(1)(a)(vi) applies to benefits received or enjoyed after October 30, 2011. The assistance provided would be considered to be a bursary to the student.

In each situation provided, if the assistance provided is a scholarship or bursary, the amount of the assistance provided to the student would be included in the income of the student under paragraph 56(1)(n) of the Act, to the extent that the amount exceeds any scholarship exemption available.

Under subsection 200(2) of the Regulations, every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income. This is required even though a student may be eligible for a full exemption pursuant to subsection 56(3) of the Act.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch