3 December 1993 Income Tax Severed Letter 9326586 - Allowances Paid by CIDA to Foreign Students and Trainees

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                    December 3, 1993

  Assessment & Enquiries        Personal and General
    Programs                          Section
  International Tax Programs        D. Zion
    Directorate                     (613) 957-2140

  Attention: D. Buchanan
                                    932658

Allowances paid by CIDA to foreign students and trainees

This is in reply to your memorandum of September 15, 1993 and a subsequent telephone conversation on November 29, 1993 between Mr. Buchanan of your office and Ms Zion of this office regarding the above noted subject.

As advised in our telephone conversation, this Directorate had occasion to review more detailed information provided by CIDA to the Source Deductions Division for the same type of enquiry in 1986. However, as agreed, our comments will be limited to the students in receipt of amounts under the long-term training program: item 2 of Mr. Buchanan's notes, which he provided to us by fax subsequent to the telephone conversation. In addition, for your information, we are attaching a copy of our 1986 reply to Source Deductions Division and the reference documentation provided by CIDA at that time.

You have asked for our comments regarding whether the amounts paid to individuals from developing countries in order to come to Canada to attend school full-time (usually for a period of one to three years) would be considered taxable income under paragraphs 56(1)(n) or 56(1)(o) of the Income Tax Act (the Act). Thus, we are limiting our comments to the table "Summary of costs covered under the TARs for long-term student training programs" (the table) where TAR is assumed to refer to CIDA's Technical Assistance Regulations.

Amounts that would be required by paragraphs 56(1)(n) or (o) of the Act to be included in computing a taxpayer,s income for the year if he or she was resident in Canada throughout the year are included in the computation of "taxable income earned in Canada" pursuant to subparagraph 115(2)(e)(ii) only where the recipient is a person described in paragraphs 115(2)(a) to (c.1) of the Act. Because the individuals in question are students described in paragraph 115(2)(a) of the Act, they are deemed to have been employed in Canada as stipulated in paragraph 115(2)(d) of the Act and the amount of their Canadian source scholarship is included in their income under subparagraph 115(2)(e)(ii) of the Act.

A review of the table indicates that all amounts are for the purpose of providing assistance to the students in order for them to pursue their education, whether by defraying direct educational expenses, related travel expenses or general living expenses while engaged in CIDA's long-term student training program. We are of the view that the amount is a scholarship or bursary which is included in income by virtue of paragraph 56(1)(n) of the Act to the extent that the amount received in the year exceeds $500. As was the case in the previous review, there is nothing in the material submitted to us to suggest that the work (study) undertaken by these trainees would constitute "research" in the sense explained in Interpretation Bulletin IT-75R3 or that the amounts so received should be considered "research grants" pursuant to paragraph 56(1)(o) of the Act.

It is our view that with one exception, the amounts described in the table and paid to or on behalf of such trainees should be included in the income of the trainee by virtue of paragraph 56(1)(n) of the Act. This would include the payment of all living, medical and travel expenses and all allowances, as well as reimbursements and accountable advances to cover expenses incurred by the trainee in furthering his or her education. The one exception to these income inclusions would be the payment of burial or certain other expenses in the event of the trainee's death, for the same reasons given in 1986.

We would like to point out that in each case it would be necessary to determine if there is a tax treaty between Canada and the individual's native country, and, if so, whether or not there is any provision in the treaty to exempt from Canadian income tax the amount of a scholarship received from a source in Canada (paragraph 5 of IT-420R3 ).

We trust that our comments have been of assistance.

B.W. Dath Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch