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: The taxpayer developed a corporate-sponsored Bursary Program. Recipients receive payments during the period of study and agree to employment following graduation. The issue is whether the payments are considered employment income and, if so, whether they are taxable to the recipient.
Position: The Program offer creates a repayable award or a forgivable loan. If a repayable award, the amount is included in income pursuant to paragraph 56(1)(n) as a bursary or scholarship. Payments under the Program do not qualify as "specific employment-related training" primarily for the benefit of the employer as the payments do not meet the guidelines outlined in ITTN 13.
Reasons: Program participants receive payments prior to establishing an employer-employee relationship.
XXXXXXXXXX 2009-034778
K. Podor
February 2, 2011
Dear XXXXXXXXXX :
Re: XXXXXXXXXX
This is in response to your correspondence dated November 12, 2009, wherein you requested our opinion on the income tax treatment of payments under a corporate-sponsored Bursary Program (the Program). If the payments are considered employment benefits, you inquired whether the payments are a taxable benefit to the Program participant. If considered employment benefits, are the payments for "specific employment-related training" which benefits the employer and; therefore, would not be a taxable benefit to the participant.
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 tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments, which may be of assistance.
Our Comments
A Bursary Program Offer (the "Offer") is made to students enrolled in a full-time educational program at an accredited Canadian university. The Offer provides payments to cover the cost of the four-year educational program. The student enters into the Offer with the corporation prior to their XXXXXXXXXX year of enrolment in the educational program. The Offer requires the Program participant to work for the employer for a minimum period commencing after graduation and completion of licensing requirements. The offer of employment is made in XXXXXXXXXX of the final year of study. If the Program participant does not remain with the employer for the requisite period, or does not comply with the terms and conditions of the Offer, the participant must repay the amounts in full.
Paragraph 56(1)(n) of the Act is a broadly worded provision that brings into income (subject to the "scholarship exemption" described below) amounts received in that year as a scholarship, fellowship, bursary or a prize for achievement in a field of endeavor (other than amounts described in paragraph (q) or amounts received in the course of business, and amounts received in respect of, or in the course of or by virtue of an office or employment). Paragraph 6 of Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants, states that normally a student is not required to do specific work for a payer in exchange for a scholarship or bursary. An amount received as a scholarship may be stated to be repayable if certain conditions attached to the particular award are not subsequently met. This feature does not alter the application of paragraph 56(1)(n) of the Act in the year the scholarship is received.
Subsection 56(3) of the Act may apply to exclude all or a portion of such scholarship in the recipient's income.
Interpretation Bulletin IT-340R2, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants - ForgivableLoans, Repayable Awards and Repayable Employment Income, discusses the differences between a forgivable loan and a repayable award and the income tax consequences arising from such transactions. As stated in paragraph 3 of IT-340R, in order to determine whether an amount is a forgivable loan or a repayable award, the rights and obligations flowing from the agreement between the grantor and the recipient must be examined. If the agreement under which an amount is paid gives rise at the time of payment to an enforceable debt, it is our view that the amount is a loan. If the agreement specifies that the amount paid does not become a debt of the recipient unless the recipient fails to fulfill certain conditions, the amount is generally considered to be a repayable award. In such a case, where a student is required to repay a scholarship because of a failure to meet the conditions, paragraph 10 of IT-340R describes the circumstances in which a deduction from income may be available.
You have asked whether or not reimbursed tuition is an employment benefit. In this case, Program participants accept the Offer prior to establishing an employer-employee relationship. As such, the payments are considered scholarships or bursaries and not employment income to the participant under subsection 5(1) pursuant to subsection 6(3) of the Act. The maintenance or upgrading of employment-related skills is an essential requirement in determining whether training is considered "specific employment-related training" for the benefit of the employer. As Program participants have not commenced employment and the corporation is not an employer, the Program is not employment-related training for the primary benefit of the employer.
Conclusion
In our view, the Offer appears to create a repayable award or a forgivable loan. If a repayable award, the amount is included in income pursuant to paragraph 56(1)(n) as a scholarship or bursary.
Payments under the Program do not qualify as "specific employment-related training" primarily for the benefit of the employer as the payments do not meet the guidelines outlined in ITTN 13.
We trust these comments are helpful.
Lita Krantz, CA
Assistant Director
International and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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