14 May 2003 Internal T.I. 2003-0013467 - EDUCATION ASSISTANCE PAID TO 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Are tuition amounts paid to or on behalf of a status Indian by INAC taxable?

Position: Question of Fact

Reasons:

The amounts are not automatically tax exempt. If the payment of tuition is pursuant to a treaty obligation of the Crown, then 90(1) of the Indian Act deems the amount to be situated on a reserve and it will be exempt under subsection 81(1) of the Act. In the absence of a treaty, the connecting factors test from Williams must be met in order to apply section 87 of the Indian Act and subsection 81(1) of the Act.

				May 14, 2003

	VANCOUVER TSO		HEADQUARTERS
				Income Tax Rulings
	Attention:  Kevin Diablo			  Directorate
				Renée Shields
(613) 948-5273

				2003-001346

Taxation of Education Assistance Paid to a Status Indian by INAC

This is in response to our various conversations and electronic correspondence (Shields/Diablo) as well as your facsimile of April 14, 2003 regarding the taxation of education assistance paid to or on behalf of status Indians by Indian and Northern Affairs Canada. XXXXXXXXXX.

Paragraph 56(1)(n) of the Income Tax Act (the "Act") requires the inclusion into income of certain scholarships, bursaries and fellowships, net of a $500 exemption. A bursary is defined in Webster's Third International Dictionary as "a sum or varying amount given or granted to a needy student". In our view, the definition of a bursary is broad enough to encompass almost any form of financial assistance paid to a student to enable a student to pursue his or her education, including a payment based on the means or needs of the student. This can include the value of ancillary assistance such as travel assistance, lodging, books or equipment, dependant care, and so on.

A bursary usually applies to education at the post-secondary school level or higher but there are circumstances where bursaries can be awarded for education below the post-secondary school level. Scholarships and bursaries ordinarily assist the student in proceeding towards a degree, diploma, or other certificate of graduation. They may apply to academic disciplines or to trades (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. It will be a question of fact based on a review of all relevant circumstances as to whether a particular individual has received a scholarship or bursary that is to be included in the individual's income under paragraph 56(1)(n) of the Act.

When a scholarship or bursary is received by status Indians, paragraph 81(1)(a) of the Act and section 87 of the Indian Act may provide a tax exemption if the income is considered an Indian's personal property situated on a reserve. The Courts have determined that, for the purposes of this exemption, income is personal property. Consequently, what must be determined is whether the scholarship or bursary received by a status Indian is situated on a reserve.

The CCRA's position respecting the tax treatment of education grants is based on the Greyeyes case (78 DTC 6043). Deanna Greyeyes was a status Indian enrolled as a student at the University of Calgary, who while attending the University of Calgary received from the Department of Indian Affairs and Northern Development the sum of $2,339.50 to assist her in her post-secondary education. At all relevant times she was neither living on nor attending classes on a reserve. However, the scholarship was received by Deanna Greyeyes pursuant to an agreement and treaty between her Band and Her Majesty specifically pursuant to an agreement to assist band members in their education in compliance with the obligations of the Federal Government under Treaty No. 6. The court held that the scholarship, by virtue of subsection 90(1) of the Indian Act, was the personal property of a status Indian situated on a reserve within the meaning of 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.

Our position has consistently been that agreements referred to in paragraph 90(1)(b) of the Indian Act must flow from a treaty, i.e., the agreement must implement the treaty. Our position stems from the decision on June 21, 1990, in Mitchell v. Peguis Indian Band ((1990) 2 SCR 85), wherein the majority in the Supreme Court of Canada held that the terms "treaty" and "agreement" in paragraph 90(1)(b) of the Indian Act take colour from one another and that the use of the term "given" can be taken as a distinct and pointed reference to the process of cession of Indian lands.

In Everett Kakfwi (99 DTC 5639), the Federal Court of Appeal referred with favour to the Supreme Court's interpretation of the terms "treaty" and "agreement" in Mitchell v. Peguis Indian Band. In this regard, the Federal Court of Appeal stated the following (at 5642):

Thus, LaForest, J.'s analysis (in Mitchell) makes clear that an application of the basic rules of legislative interpretation which require that the terms 'treaty' and 'agreement' in paragraph 90(1)(b) be linked together so as to limit the extent of the word 'agreement' to that of 'ancillary agreement'-- that is to say an agreement in the nature of a treaty or attached to a treaty -- is wholly supported by the history of the protective tax regime adopted by Parliament in furtherance of the duties of the Crown toward Indians.

As a result, it is our view that the Kakfwi decision further supported our position. Thus, it remains our view that an agreement referred to in paragraph 90(1)(b) of the Indian Act must flow from 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.

If no treaty exists, then in order to satisfy section 87 of the Indian Act, it must be demonstrated that the income (i.e. the training allowance) is situated on a reserve. In determining whether income is situated on a reserve, the approach taken by the Supreme Court of Canada in the case of Williams (92 DTC 6320) must be followed. The proper approach to determining the situs of personal property is to evaluate the various connecting factors which tie the property to one location or another. The Supreme Court indicated that the ultimate question is to determine to what extent each connecting factor is relevant in determining whether taxing the particular kind of property in a particular manner would erode the entitlement of a status Indian to personal property situated on a reserve. In our view, education assistance received by status Indians will generally not be connected to a reserve unless the educational program itself is taken on a reserve. By this analysis, where the educational program occurs off reserve, the assistance will generally not be tax exempt.

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We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate