25 September 1997 Internal T.I. 9720257 - TUITION TAX CREDITS

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.

Principal Issues:

Does the restriction on tuition fees, in subparagraph 118.5(1)(a)(iii.1), apply in respect of the $500 of a scholarship or bursary which is not taxed by virtue of paragraph 56(1)(n)?

Position:

Generally, no restriction.

Reasons:

The intended use of bursaries and scholarships is generally not restricted to just tuition fees, but is also in respect course related costs and associated living expenses. Thus, the $500 which is not included in income by virtue of paragraph 56(1)(n) is not necessarily "in respect of" tuition fees as required in subparagraph 118.5(1)(a)(iii.1).

									September 25, 1997

	Carolyn Ritchie	Headquarters
	Manager		A.M. Brake
	T1 Adjustments Section	957-8953
	Special Processing Division
		7-972025

Taxability of Tuition and Living Expenses Paid
Under Provincial Workforce Re-entry Program

This is in reply to your memorandum of July 24, 1997 relating to the tax treatment of assistance, funded by Human Resources Development Canada and administered by the province (in this case New Brunswick), to be received by a certain sector of the work force in respect of the cost associated with their educational and training upgrading that will allow them to re-enter the labour force. This assistance covers both the cost of tuition and associated living expenses and is paid out as either a repayable loan, non-repayable grant, or a combination of the two. You asked for us to comment on the following:

1.The province of New Brunswick has asked whether grant amounts paid in respect of tuition would be exempt from tax by virtue of the exception in subparagraph 56(1)(a)(iv) of the Income Tax Act. Based on the understanding that these provincial payments are not considered to be paid under the Employment Insurance Act (the "EI Act"), it is your view that they do not qualify for this exemption.

2.You feel that the above-described "non-repayable grant" would qualify as a bursary for purposes of paragraph 56(1)(n).

3.You feel that, in the case of a $1200 non-repayable grant where only $700 ($1200 - $500) is taken into income under paragraph 56(1)(n), subparagraph 118.5(1)(a)(iii.l) would apply to restrict the tuition credit to $700 (assuming that the other requirements of section 118.5 have been met).

4.It is your view that the repayable loan would not be subject to tax.

5.Since the grant is being taxed as a bursary, you feel that the education credit would not be denied but that this seems inequitable, since an individual in receipt of an EI payment relating to the cost of a course or program designed to facilitate the re-entry into the labour force of a claimant under the EI Act (which payment is exempt from tax by virtue of subparagraph 56(1)(a)(iv)) would be denied the credit because of the definition of "qualifying educational program" in subsection 118.6(1).

Our Comments

We agree with your positions as set out in 1, 2, and 4 above. We also agree with your view in 5 above that, since a non-repayable grant is being taxed as a bursary, an otherwise qualifying education credit would not be denied. That is, the grant will also be considered a bursary for purposes of the definition of "qualifying educational program" in subsection 118.6(1). However, we do not agree that there is an inequity as described in 5 above, as the EI benefits in question are exempt from tax, while the non-repayable grants are included in income as provided in paragraph 56(1)(n).

With regard to subparagraph 118.5(1)(a)(iii.1), it is our view that this provision would generally not restrict the tuition credit in the manner set out in 3 above. The intended use of bursaries and scholarships is generally not restricted to just tuition fees, but is also in respect of course related costs and associated living expenses. Thus, the $500 which is not included in income by virtue of paragraph 56(1)(n) is not necessarily "in respect of" tuition fees as required in subparagraph 118.5(1)(a)(iii.1).

We trust that these comments will be of assistance.

Bryan W. Dath
Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch