17 July 2018 External T.I. 2017-0735391E5 - Educational 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: 1) Are payments under the XXXXXXXXXX included in the student’s income as social assistance or bursaries?

2) Are the payments under the XXXXXXXXXX taxable to the student?

3) What are the reporting and/or filing obligations arising from payments made under the XXXXXXXXXX?

Position: 1) Likely a bursary under 56(1)(n).

2) Question of Fact. An amount paid as a bursary is included in income to the extent it exceeds the scholarship exemption.

3) Payer of bursary is required to file a T4A Summary of Pension, Retirement Annuity, and Other Income, and a related T4A Statement of Pension, Annuity, and Other Income.

Reasons: 1) Paragraph 56(1)(n) is broad and would encompass almost any form of financial assistance paid to a student to enable the student to pursue his or her education.

2) Given that the XXXXXXXXXX applies to a wide range of study programs each student would need to determine whether they meet the definition of a "qualifying student" pursuant to subsection 118.6(1) of the Act.

3) Income Tax Regulation 200(2).

XXXXXXXXXX								2017-073539
C. Brennan, CPA, CA
July 17, 2018

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

We are writing in response to your letter dated October 24, 2017, where you have asked several questions regarding the tax treatment of payments made under the XXXXXXXXXX, a new financial assistance program for education and training introduced by the Government of the Province of XXXXXXXXXX.

Specifically, you have asked the following questions related to the XXXXXXXXXX:

1. Are payments under the XXXXXXXXXX included in the student’s income as social assistance or a bursary?
2. Are the payments under the XXXXXXXXXX taxable to the student?
3. What are the reporting and/or filing obligations arising from payments made under the XXXXXXXXXX?

Our understanding is that an eligible candidate of the XXXXXXXXXX must be a XXXXXXXXXX student between 19 – 26 years of age, be attending a XXXXXXXXXX public post-secondary institution and have received care from the XXXXXXXXXX, or XXXXXXXXXX through the XXXXXXXXXX for a minimum of 24 month.

The XXXXXXXXXX waives all tuition and mandatory fees charged to the student by the public post-secondary institution that are required to be paid in order for the student to successfully complete the program or courses in which the student is enrolled. The XXXXXXXXXX applies to a wide range of study programs. There is no minimum course duration, course load or maximum tuition fee coverage. The XXXXXXXXXX does not apply to graduate or post-graduate courses or programs.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Question 1

Are payments under the XXXXXXXXXX included in the student’s income as a bursary or as social assistance?

It is a question of fact, to be determined from a review of all the information pertaining to a particular program, including the program eligibility, criteria rules and policies, whether a payment from a particular program is, for income tax purposes, social assistance, a bursary or something else. In the context of this program, it is generally the provincial or territorial government or body that is administering the particular program that would determine the nature of the payment. However, we can provide the following guidance for your specific program.

Bursary

Amounts received as or on account of a scholarship, bursary, fellowship or prize for achievement are included in income under paragraph 56(1)(n) of the Act. Although the term bursary is not defined in the Act, it has been a long-standing position of the Canada Revenue Agency (“CRA”) that the definition of bursary is broad enough to encompass almost any form of financial assistance that enables a student to pursue his or her education.

Social Assistance

Amounts paid as social assistance on the basis of a means, needs or income test are included in the income of a taxpayer under paragraph 56(1)(u) of the Act, to the extent that the payment is not otherwise required to be included in computing the income of the taxpayer or the taxpayer’s spouse or common-law partner. While the amounts paid under the XXXXXXXXXX do not appear to be made on the basis of a means, needs or income test, in the event that they were made on this basis, paragraph 56(1)(n) of the Act would take precedent over paragraph 56(1)(u), as confirmed within the following statement in paragraph 3.85 of Income Tax Folio S1-F2-C3: Scholarships, Research Grants and Other Education Assistance (“Scholarship Folio”),

“Where the primary purpose of a payment is to provide assistance to enable a taxpayer to pursue an education and may therefore fall within the meaning of the term bursary for income tax purposes, the assistance should generally be included in computing the taxpayer’s income pursuant to subparagraph 56(1)(n)(i) rather than 56(1)(u).”

Conclusion

Based on the information provided, it appears that the primary purpose of the payments under the XXXXXXXXXX is to provide financial assistance to students in order to further their education. Therefore, the payments would be considered to be a bursary and would be included in the student’s income pursuant to paragraph 56(1)(n) of the Act. This would be the case regardless of whether the payments under the XXXXXXXXXX are made directly to the student or paid on the student’s behalf directly to the educational institution.

Question 2

Are the payments under the XXXXXXXXXX taxable to the student?

Under paragraph 56(1)(n) of the Act, scholarships, fellowships, bursaries and similar prizes received by a taxpayer are included in income in the year of receipt, to the extent that the amount received exceeds the recipient’s scholarship exemption for the year.

Where a student receives an amount as a scholarship or bursary in the year, the first $500 of the amount is exempt from income. The total amount of scholarship income received may be fully eligible for the scholarship exemption (and therefore, not subject to income tax), if the recipient is considered a full-time “qualifying student”. In circumstances where the student is considered a part-time “qualifying student”, they may be eligible to a scholarship exemption equal to the tuition paid plus the costs of program-related materials.

A “qualifying student” for a month in a tax year includes an individual who, in the month, is enrolled in a qualifying educational program as a full-time student at a designated educational institution. A “qualifying educational program” is a program that lasts at least three consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time), at a designated educational institution. A “designated educational institution” includes universities, colleges or other educational institutions.

More information regarding the factors relevant to the determination of whether an amount is a scholarship or bursary, or a research grant, as well as the scholarship exemption, is in our Scholarship Folio available at canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-2-students/income-tax-folio-s1-f2-c3-scholarships-research-grants-other-education-assistance.html and in Guide P105, Students and Income Tax available at canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.

Whether the payments received by students under the XXXXXXXXXX would qualify for a scholarship exemption pursuant to subsection 56(3) of the Act would be a question of fact and based on the circumstances of each student.

Question 3

What are the reporting and/or filing obligations arising from payments made under the XXXXXXXXXX?

Under paragraph 200(2)(a) of the Income Tax Regulations, every payer of a scholarship or bursary must file a T4A Summary of Pension, Retirement Annuity, and Other Income, and a related T4A Statement of Pension, Annuity, and Other Income (T4A Slip), to report the amount. A T4A Slip is required even if the individual’s scholarship exemption completely eliminates the amount of the bursary that would otherwise be included in income of the student during the year. However, under the CRA's administrative policy, a payer is only required to issue a T4A Slip where the total bursary paid to, or on behalf of, an individual exceeds $500 in the year. We note that there is no statutory requirement to withhold income taxes on the payment of a bursary described in paragraph 56(1)(n) of the Act.

We trust that these comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
Manager – Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate