13 January 1995 Internal T.I. 9424126 - EDUCATION TAX CREDIT

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.

		January 13, 1995

	Client Assistance Directorate	Head Office
	Hélène Beachemein	Rulings Directorate
	Director General	J.A. Szeszycki
(613) 957-8953
	Attention: Donna Lally

		942412

Education Tax Credit
Your File #HDM9312-5-2

This is in reply to your memorandum of September 19, 1994 signed by Joanne Ahearn requesting clarification of a position that we had expressed in previous correspondence concerning the eligibility of certain students for an education tax credit claim. The students in question were those in receipt of training allowances similar to those paid under the National Training Act.

In your memorandum you make reference to paragraphs 17 and 18 of IT-515R, Education Tax Credit, which appears to indicate that training allowances similar to those provided under the National Training Act but provided under different spending authorities (such as the Unemployment Insurance Act) would be considered bursaries for the purposes of clause (a)(i) of the definition of "qualifying educational program" contained in subsection 118.6(1) of the Act.

We have conducted an in-depth review of the provision as well as the origin of the comments found in the bulletin. The comments in the bulletin were traced back to the original IT-224, Education Deduction, published in May, 1975. An examination of the backup file for that bulletin reveals that the initial draft of (what is now) paragraph 17(b) of IT-515R read "...students in receipt of adult training allowances under either federal or provincial legislation.". This wording appears to reflect the intent of the 1972 budget speech, in which the Finance Minister stated "Those eligible for training allowances ... will not be eligible for this deduction.".

It was subsequently realized, however, that the wording found in clause 110(9)(b)(i)(A) (the precursor to the current education tax credit), "an amount received by the student as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour carried on by him..." was identical to the words found in paragraph 56(1)(n) of the Act. It was concluded, therefore, that the amounts referred to in that segment of the definition were the same amounts that were required to be included in income under paragraph 56(1)(n). It was further realized that adult training allowances available in those days under various federal and provincial occupational (manpower) training legislation, including the Adult Occupational Training Act (now the National Training Act), fit the Department's accepted definition of a bursary. Allowances under the Adult Occupational Training Act, however, were not included in income under paragraph 56(1)(n) since they were specifically dealt with under paragraph 56(1)(m) of the Act. Consequently, subsequent drafts of IT-224 refer to the exclusion from the deduction for students who are recipients of allowances or grants under the Adult Occupational Training Act but inclusion of those who are in receipt of other government training grants.

Applying the same rationale we examined the words of IT-515R under the circumstances of today. We have previously been asked our views on the taxability of training allowances provided under the Unemployment Insurance Act. It was our conclusion that, since the amounts were being provided as a benefit under the U.I. Act and a specific provision exists (subparagraph 56(1)(a)(iv)) to bring such amounts into income, regardless of their similarities to allowances provided under the National Training Act or to bursaries in general, these amounts would be treated under paragraph 56(1)(a) rather than 56(1)(m) or (n). Consequently, amounts treated as U.I. benefits for tax purposes are not considered described in the words of paragraph 56(1)(n) and therefore not included in the words of subparagraph (a)(i) of the definition of "qualifying educational program". For the same reasons, amounts received by a taxpayer under training programs described in paragraph 56(1)(aa) of the Act would be excluded from eligibility for the student deduction.

As a result, training allowances provided under spending authorities other than the National Training Act and the Unemployment Insurance Act, would need to be examined in order to determine (i) whether the training allowances are included in income under a separate provision of the Act and (ii) if not, whether the allowance could be considered a bursary for the purposes of paragraph 56(1)(n) of the Act. In our view, if neither (i) nor (ii) apply, then the recipient of the allowance would not be considered entitled to a claim for the education tax credit.

In view of our preceding comments, paragraph 18(a) of IT-515R may be somewhat misleading, in today's context, in its inference that any training allowance other than one provided under the National Training Act would entitle its recipient to the education tax credit. With the increasing demands on governments at all levels to develop training initiatives, related allowances should be examined as to their specific objectives.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch