6 August 2010 External T.I. 2010-0370681E5 - Tuition 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. Can the tuition, education and textbook tax credits be claimed if the student receives tax-exempt education assistance?
2. Can the tuition, education and textbook tax credits be claimed if the student's employer paid for the employee's tuition and the amount is not included in the student's income?
3. For how many previous years can tax returns be adjusted for the tuition and education amounts?

Position: 1. Possibly.
2. It depends on the nature of the assistance received.
3. A request for an adjustment will be considered for up to the previous 10 years depending on the facts.

Reasons: 1. Receipt of a scholarship or bursary will not preclude a student from claiming the tuition, education and textbook tax credits, providing all other criteria for the tax credits are met.
2. See the document.
3. Subsection 152(4.2) allows for a reassessment for up to the previous 10 years.

XXXXXXXXXX 							2010-037068
								P. Burnley
								(613) 957-2100
August 6, 2010

Dear XXXXXXXXXX :

Re: Education Assistance Received by an Indian

This is in response to your email correspondence of June 7, 2010, asking whether you can claim the tuition, education and textbook tax credits if you receive education assistance amounts for your university education from your First Nation and the amounts are exempt from tax. You have also asked if the tuition, education and textbook tax credits can be claimed where the First Nation paid for a student's tuition, the First Nation is the employer of the student, and the tuition amount was not included in the student's income. You would also like to know how many years back you can request an adjustment to your income tax return in order to claim the tuition tax credit.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. 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.

In your correspondence, you explain that you are an Indian as that term is defined in subsection 2(1) of the Indian Act. You state that your education was paid for by the education department of your First Nation, funded by Indian and Northern Affairs Canada ("INAC"). Through your First Nation, you also received education assistance payments for living expenses while going to university.

In our view, scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. Bursaries can include amounts paid to defray living expenses, as well as amounts that are directly related to the cost of the education. 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.

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. 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 in paragraph 56(1)(n) of the Act, although this would be rare. For example, where a First Nation provides post-secondary scholarships or bursaries to all of its eligible members, not only employees, it might be reasonable to conclude that a scholarship or bursary received by a member who is also an employee is not received in respect of employment.

In 2006, subsection 56(3) of the Act was amended to expand the scholarship exemption so that most scholarships and bursaries received by students (including scholarships or bursaries received by Indians from INAC, the Indian's First Nation or another source), are exempt from income tax subject to certain criteria. Specifically, scholarships and bursaries included in income pursuant to paragraph 56(1)(n) 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 in accordance with subsection 118.6(2) of the Act are exempt from tax. As a result of this expanded exemption, most scholarships and bursaries received are exempt from tax. However, draft legislation effective 2010 may limit the amount of the scholarship exemption available with respect to part-time studies. Scholarships and bursaries that are exempt from tax do not have to be reported on the student's income tax return.

The non-refundable education and post-secondary textbook tax credits, provided in section 118.6 of the Act, are available to students enrolled at a "designated educational institution" in a "qualifying educational program" or "specified educational program", subject to certain restrictions. Receipt of a scholarship or bursary, in and of itself, will not preclude a student from claiming the education and textbook tax credits. This is true even if the amount received is exempt from tax. To claim these credits, the student must obtain from the designated educational institution either Form T2202, Education and Textbook Amounts Certificate or Form T2202A, Tuition, Education and Textbook Amounts Certificate, as proof of enrolment. It is the student's responsibility to determine if the education and textbook tax credits can be claimed.

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. Subparagraph 118.5(1)(a)(iii) of the Act provides that an amount paid for tuition on behalf of an individual by the individual's employer or an amount paid for tuition by the individual, but for which the individual is reimbursed by the individual's employer, is not eligible for the credit unless the reimbursement is included in computing the individual's income. Subparagraphs 118.5(1)(a)(iii.1) and (v) of the Act similarly deny the tuition tax credit in situations where the fees are either reimbursed or paid for on the student's behalf under a program of Her Majesty in right of Canada designed to facilitate the entry or re-entry of workers in the labour force or designed to assist athletes, and the payment or reimbursement received is not included in the individual's income. As long as the requirements of subsection 118.5(1) are met, and none of these exceptions apply, the tuition tax credit will be available even though the scholarship or bursary received by a student is exempt from tax.

You have also asked if the tuition, education and textbook tax credits can be claimed where the First Nation paid for a student's tuition, the First Nation is the employer of the student, and the tuition amount was not included in the student's income (for example, because the education was primarily for the benefit of the employer, because the employee's income was exempt from tax pursuant to another provision of the Act, or because the full scholarship exemption was available). 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.

As previously mentioned, subparagraph 118.5(1)(a)(iii) of the Act provides that a tuition tax credit is not available where an individual's employer paid or reimbursed the tuition and it is not included in computing the individual's income. 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.

To claim the tuition, education and textbook tax credits, the student must file an income tax return, even if no tax is payable. If an income tax return has been filed, as a general rule, subsection 152(4) of the Act authorizes the CRA to reassess a return within three years of the date of the original assessment. However, pursuant to subsection 152(4.2) of the Act, the CRA may reassess an individual's income tax return beyond this three-year period, at the request of the individual, for the ten calendar years before the calendar year in which the taxpayer's request is filed. To request an adjustment to an income tax return for one of the previous two years, the taxpayer can submit a request online using the "My Account" electronic service available on the CRA Web site. For requests for adjustments for other taxation years, or to make a request by mail instead of online, a taxpayer may send a completed Form T1-ADJ, T1 Adjustment Request, or a signed letter, to the individual's Tax Centre. Information regarding the change requested, including supporting documentation, must be included. Information on how to change an income tax return can be found on the CRA's Web site.

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 and in pamphlet P105, Students and Income Tax, at http://www.cra-arc.gc.ca/students/.

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