23 August 2005 Ministerial Correspondence 2005-0140431M4 - Status Indian post secondary education assistance

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: Are status Indians taxable on post secondary education assistance received from INAC?

Are status Indians taxable on Part II EI benefits?

Position: The CRA will continue to treat PSE amounts received from INAC as tax-exempt and there is no requirement for the issuance of a T4A slip.

Part II EI benefits are available to the public at large. If sufficient factors connect the amount to a reserve, the benefit may be exempt.

Reasons: The Government of Canada has undertaken a review of Aboriginal policies including post secondary assistance. The admin position on PSE assistance will continue in light of the legal and policy uncertainty.

EI Part II benefits are not related to prior employment, accordingly the income must be connected to a reserve in order to be exempt.

Signed on August 23, 2005

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your letter of November 18, 2004, concerning assistance received by First Nation students. A copy of your letter was sent to Minister McCallum by the Honourable Ralph E. Goodale, Minister of Finance, on June 23, 2005.

Your letter expresses the view that amounts paid to Status Indians under two distinct programs should be tax exempt. Section 87 of the Indian Act exempts from tax the personal property of a Status Indian provided that property is situated on a reserve. There are two ways in which income can be situated on a reserve:

(i) by a connecting factors analysis under which the amount is determined to be so connected to a reserve that it should be considered to be situated there, or

(ii) if the amount has been paid pursuant to a treaty with Her Majesty, section 90 of the Indian Act will deem it to be situated on a reserve for purposes of the section 87 tax exemption.

Your first area of concern is the taxation of benefits received under a program funded by Part II of the Employment Insurance Act. Under this program, benefits are available to qualifying members of the public for various purposes, including help in starting a business or becoming self-employed, gaining work experience and obtaining skills for employment.

With respect to the question of Part II benefits paid to a Status Indian, the Canada Revenue Agency (CRA) has a published position that the benefit will only be tax exempt by demonstrating sufficient factors connecting the amount to a reserve. It would consider a persuasive factor to be, for example, that the benefits are used for training taking place on a reserve.

Pursuant to the Income Tax Regulations, Part II benefits must be reported on a T4A slip and, in the absence of connecting factors, a specific provision of the Income Tax Act requires that the amount be included in the recipient's income. However, it is important to note that, to the extent that the benefit relates to tuition assistance, the Act provides an equivalent deduction from taxable income to completely offset the income inclusion.

Your second concern relates more generally to the taxation of scholarships and bursaries. The CRA has had a longstanding position that post-secondary education assistance payments received by a Status Indian under an Indian and Northern Affairs Canada (INAC) program are tax exempt. The Government of Canada is conducting a review of Aboriginal policies, including post-secondary education assistance for Aboriginal students. Given the current lack of clarity around the legal and policy framework for this assistance, the CRA will continue to treat this assistance as tax exempt. During this time, T4A slips will not be required to be issued.

Should a Status Indian receive a post-secondary scholarship or bursary from a source other than an INAC program, the tax results are the same as for every other student. The general rule is that the payer of the assistance issues a T4A slip and students are required to include the amount in their income, subject to an exemption of up to $3,000. The Act provides post-secondary students with a non-refundable tuition tax credit based on their tuition fees paid for the year. The Act also allows them to claim a non-refundable education tax credit based on an amount of $400 for each month that the student is enrolled as a full-time student in a qualifying educational program with a designated educational institution. As a result of the exemption and the non-refundable tax credits, including the basic personal amount, most Canadian students do not have to pay income tax on post-secondary education assistance.

I appreciate the opportunity to address your concerns.

Yours sincerely,

Brian McCauley
Assistant Commissioner
Policy and Planning Branch

c.c.: Minister's Office
Political Assistant

Renée Shields
948-5273
2005-014043
August 3, 2005