14 October 2010 External T.I. 2010-0377351E5 - Bursaries and Education credits - Indian

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. Is financial assistance for education paid by XXXXXXXXXX First Nation taxable to the students?
2. Should income tax be withheld on amounts paid for financial assistance to students?
3. Does anything change if the student is an employee of the First Nation?
4. What tax credits are available to the students?
5. Does it make any difference to the student if the student is not resident in XXXXXXXXXX ?

Position: 1. Scholarships and bursaries are taxable under 56(1)(n), but the student may qualify for the scholarship exemption under 56(3).
2. If the amount is determined to be a scholarship or bursary, no income tax withholdings are required.
3. Possibly - see the document.
4. Tuition, education and textbook tax credits are available, subject to all of the usual criteria, to the students.
5. Generally, in this situation, the taxation is the same for all students resident in Canada.

XXXXXXXXXX
									2010-037735
									P. Burnley
									(613) 957-2100
October 14, 2010

Dear XXXXXXXXXX :

Re: Education Assistance and Education Tax Credits

This is in response to your email correspondence of August 10, 2010, asking various questions about funding paid by XXXXXXXXXX (the "First Nation") to its citizens for post-secondary education. XXXXXXXXXX .

The situation outlined in your letter appears to relate to a factual one, involving specific taxpayers. 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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views.

You have explained that the First Nation XXXXXXXXXX receives funding for post-secondary education from the Government of Canada through a XXXXXXXXXX . You have stated that the First Nation uses these funds to provide assistance to students so that a student may attend college or university to obtain a degree, diploma or certificate. Assistance provided includes the payment of tuition for the student directly to the educational institution, a book and living allowance and, when required, funding for travel to and from the institution. The First Nation provides the student with a T4A, Statement of Pension, Retirement, Annuity and Other Income, that reports the full amount of the payments made to the student or on the student's behalf. You have also mentioned that the First Nation withholds income tax from the students on these amounts.

Scholarships and Bursaries and the Scholarship Exemption

Generally, scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. Bursaries can include amounts paid to defray living expenses and travel to and from the institution, as well as amounts that are directly related to the cost of the education, such as tuition and books. Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. Scholarships and bursaries are generally included in income pursuant to paragraph 56(1)(n) of the Income Tax Act (the "Act"). Whether an amount is a scholarship or bursary can only be determined after a review of the facts in each situation.

For taxation years after 2005, subsection 56(3) of the Act provides a scholarship exemption such that most scholarships and bursaries received by full-time students are exempt from income tax subject to certain criteria. Specifically, scholarships and bursaries included in income pursuant to paragraph 56(1)(n) of the Act, and received by a student in connection with the student's enrolment in a program for which the student is entitled to claim the education tax credit are exempt from income tax. In cases where the scholarship or bursary is received in connection with enrolment in a program that does not qualify for the education tax credit, the scholarship exemption under subsection 56(3) is limited to $500. Amendments to the Act, proposed in the March 4, 2010 Budget, may limit the amount of the scholarship exemption available with respect to part-time studies. In particular, if a scholarship or bursary is provided in connection with a part-time program, the scholarship exemption may be limited to the tuition paid for the program plus the costs of program-related materials. This restriction does not apply if the part-time program is undertaken by a student entitled to the disability tax credit or a student who cannot be enrolled on a full-time basis because of a mental or physical impairment.

Scholarships and bursaries are included in the income of the recipient, net of the applicable scholarship exemption. A scholarship or bursary that is fully exempt from income tax does not have to be reported on the student's income tax return. Notwithstanding that a particular student may be eligible for a full exemption, the payer of a scholarship or bursary is still required to file a T4A information return and provide the student with a T4A slip pursuant to subsection 200(2) of the Income Tax Regulations. There is no statutory requirement to withhold income tax on the payment of these amounts. The full amount of the assistance paid to the student, or on the student's behalf, should be included on the T4A.

Students Living Outside XXXXXXXXXX

You have asked if the taxation of the financial assistance changes if the student does not live in XXXXXXXXXX , but is attending school elsewhere in Canada or in another country. The taxation of scholarships or bursaries described in this letter applies to students who are residents of Canada XXXXXXXXXX . Students who temporarily leave Canada to attend post-secondary institutions outside Canada generally remain residents of Canada for tax purposes. For more information regarding students attending institutions outside Canada, and to assist in determining the residency of a student, see Information Sheet RC192, Information for Students - Educational Institutions Outside of Canada, available on our Web site.

Tuition, Education and Textbook Tax Credits

The non-refundable education and post-secondary textbook tax credits are available to students based on the number of months in which they are enrolled at a "designated educational institution" in a "qualifying educational program" or "specified educational program", subject to certain restrictions. These terms are defined in subsection 118.6(1) of the Act and are explained in more detail in Interpretation Bulletin IT-515, Education Tax Credit, and pamphlet P105, Students and Income Tax ("P105"). Subsection 118.5(1) of the Act provides a non-refundable tuition tax credit for tuition paid for a year, subject to certain requirements and exceptions. The tuition tax credit is explained in more detail in Interpretation Bulletin IT-516, Tuition Tax Credit, and P105. In your correspondence, you note that some students may be attending educational institutions outside Canada or taking courses over the internet or by correspondence. The criteria to be eligible for the tuition, education and textbook tax credits are different in each of these scenarios, as described in the publications referred to above. For example, an institution attended outside Canada must be a university able to confer degrees at the bachelor or equivalent level in order for the student to qualify for a tuition or education tax credit. In all cases, to claim the education and textbook tax credits, the student must obtain a prescribed form from the designated educational institution. It is the student's responsibility to determine if the tuition, education and textbook tax credits can be claimed.

To claim the tuition, education and textbook tax credits, the student must file an income tax return, even if no tax is payable. A student can also file a tax return to claim a refund of any overpayment of income tax withholdings, if applicable.

Employees of the First Nation

You have mentioned that some students receiving bursaries could also be employees of the First Nation. An amount will not be included in paragraph 56(1)(n) of the Act if it is received in respect of, in the course of or by virtue of an office or employment. Where such amounts are received in respect of, in the course of or by virtue of employment and are mainly for the benefit of the employee, they are generally taxable as employment income. However, there could be situations where a scholarship or bursary received by a student from an employer is not taxable as employment income, but is included in income under paragraph 56(1)(n) of the Act, although we emphasize that this would be rare. For example, where a First Nation provides post-secondary scholarships or bursaries to all of its eligible citizens, not only to employees, it might be reasonable to conclude that a scholarship or bursary, paid out pursuant to the general bursary program, received by a citizen who is also an employee, was not received by virtue of employment. If this were the case, the First Nation would issue a T4A as previously discussed, and the student would not be precluded from claiming the scholarship exemption. Whether or not a scholarship or bursary is received by virtue of employment is a question of fact.

Subparagraph 118.5(1)(a)(iii) of the Act provides that a tuition tax credit is not available where an individual's employer pays or reimburses the tuition and it is not included in computing the individual's income. Therefore, where the First Nation is the employer of a student, the First Nation pays for or reimburses the student's tuition, and the tuition is not included in the student's income (for example, because the full scholarship exemption is available), the tuition tax credit would not be available. However, where an employer provides education assistance such as a scholarship or bursary for education expenses other than tuition, or the amount provided for tuition is included in the student's income, the tuition tax credit would be available. Therefore, whether the tuition tax credit is available where an employer has provided education assistance can only be determined based on the facts of the particular situation.

For purposes of the education and textbook tax credits, subsection 118.6(1) of the Act specifies that a qualifying educational program does not include a program if the student receives, from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement for expenses in respect of the program, other than such things as a scholarship or bursary, a Canada student loan or certain government financial assistance paid pursuant to an agreement with Human Resources and Skills Development Canada. Therefore, an individual receiving any amount of reimbursement, allowance or benefit from an arm's length person (including an employer) would not qualify for the education and textbook tax credits unless the amount received fit within the exceptions noted above. Again, it is a question of fact whether a particular amount is a scholarship or bursary.

We trust that these comments will be of assistance. More information on the tuition, education and textbook tax credits can be found on our Web site at http://www.cra-arc.gc.ca/students/. We have also enclosed a copy of our recent technical interpretation regarding education assistance received by an Indian.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch