2 August 1995 External T.I. 9512895 - INDIAN TUITION FEES

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.

		951289
XXXXXXXXXX	A.M. Brake

August 2, 1995

Dear XXXXXXXXXX:

This is in response to the request you sent to the attention of Jamie McInnis, GST Rulings and Interpretations, which was forwarded for our reply on May 1, 1995. Your enquiry related to the entitlement of native students to tuition fee and education deduction credits when the students are in receipt of non-taxable living allowances and their tuition fees are paid by someone other than themselves. The question of the educational institution issuing T4A Slips also arises where the institution receives bulk funds and disburses them by actually paying the fees on behalf of numerous students in accordance with the direction given by the provider of the funds.

Our comments

The Department's position respecting the tax treatment of education grants is based on the Greyeyes case (78 DTC 6043) which held that the scholarship paid to a status indian by the Department of Indian Affairs was exempt from tax by virtue of subsection 90 and section 87 of the Indian Act.

Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. Paragraph 90(1)(b) of the Indian Act provides that for purposes of section 87, personal property that was given to Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on a reserve. As described in Mitchell v Peguis Indian Band ((1990) 2 SCR 85), in paragraph 90(1)(b) of the Indian Act the words "treaty" and "agreement" take colour from each other and, in our view, an agreement would have to be similar in nature to a treaty. It is a question of fact whether a scholarship for education received by a status Indian is received under a treaty or agreement between a band and Her Majesty and is exempt or is received under some other program and is taxable. Documentation would be required to resolve this issue.

1. Tuition Tax Credits

Paragraph (b) of subsection 118.5 of the Act refers to "the individual's tuition fees paid in respect of the year... except to the extent...". These exceptions are described in subparagraphs (ii.1) through (iv) of that paragraph and unless the amounts paid are specifically described within these exceptions, the fees paid would be eligible for the credit.

Tuition fees paid by an on-reserve employer would fall within the subparagraph 118.5(a)(iii) exception if the salary and other benefits received by that employee were excluded from income by virtue of paragraph 81(1)(a) of the Act and, accordingly, the amounts paid would not be eligible for the credit. However, fees paid by a band on behalf of an individual who was not an employee of the band, would qualify if the amounts do not fall within the other exceptions. With respect to the exception in subparagraph 118.5(a)(iii.1), it would be a question of fact as to whether the individual was entitled to receive reimbursement or assistance under a program described therein, that is, a program of Her Majesty in the Right of Canada or a province designed to facilitate the entry or re-entry of workers into the work force.

2. Education Tax Credits

Subparagraph (a)(i) of the definition of qualifying education program as defined in subsection 118.6(1) serves to deny a credit if the student receives, from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement, other than 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 ordinarily carried on by the student. Hence, students receiving allowances, for example from a band, that fall within the aforementioned described exceptions would qualify for the education tax credit. Again, it would be a determination of fact as to whether a particular allowance would fit within the description of a scholarship, fellowship, bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the student. We enclose Interpretation Bulletin IT-75R3 which discusses "scholarships and bursaries".

3. Educational Institution Issuing T4A Slips

An example of a situation where an educational institution would issue T4A Slips is where X corporation makes available, say, $100,000 with instructions to the institution to identify 50 students under given criteria and pay $2,000, as a bursary or scholarship on behalf of each student, to the institution on account of tuition fees. The institution, acting as agent of X corporation, will issue T4A Slips on behalf of the corporation if specifically identified or on its own behalf. In the event that it can be established that the amounts are exempt under 87, the issuance of T4A's to status Indians in receipt of educational funds will not be required.

We are forwarding a copy of this correspondence to the attention of Ms. Dale Amey, London Tax Services Office, should you wish to further discuss this matter with Ms. Amey.

We trust that you will find our comments helpful.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

cc.Ms. Dale Amey

London Tax Services