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: How to calculate the scholarship exemption in the context of XXXXXXXXXX grant, namely in situations where a grant recipient is enrolled in an educational program both as a full-time student and a part-time student in the same year.
Position: A determination has to be made on a month-to-month basis as to whether a XXXXXXXXXX grant recipient is a full-time qualifying student or a part-time qualifying student in respect of the specific educational program in connection with which the grant is received.
Reasons: The definition of qualifying student in subsection 118.6(1) - which refers to a qualifying student “for a month [...] who in the month [...],” as well as our previous interpretation in document E 2015-0624271I7 of the term “program” in the context of paragraph 56(3.1)(b).
XXXXXXXXXX
2022-092678
Randa El-Kadi
August 15, 2022
Re: The XXXXXXXXXX grant and the scholarship exemption
Dear Mr. Hull,
We are replying to the emails dated February 3, 2022 and February 10, 2022 that XXXXXXXXXX, respectively, had originally sent to XXXXXXXXXX in the Collections and Verification Branch. The purpose of the emails was namely to confirm the extent to which students who received a grant under the pilot XXXXXXXXXX program were eligible for the scholarship exemption. More specifically, we were asked whether students should use their full-time (FT) or part-time (PT) status for the purpose of calculating the scholarship exemption in a given year during which they were both FT and PT students.
Based on information we received from your Department, it is our understanding that XXXXXXXXXX grants provide education assistance to eligible Canadian post-secondary students to participate in international education opportunities to study or work abroad. Students must be Canadian citizens or permanent residents, 18 years of age or older, and registered at a publicly-funded Canadian college or university (at the undergraduate level) either on a FT or PT basis. It is our understanding that there is no requirement for students to enrol at an educational institution outside Canada for the purpose of engaging in an international education experience.
International opportunities may include participation in out-of-country programs/experiences such as summer exchanges, internships, co-op placements, research placements, or faculty-led group study programs. Participation can be virtual, using communication technologies, or it can require students to physically travel to the study/work location abroad. All international experiences must be organized and academically recognized by the Canadian post-secondary institution. Namely, they must contribute towards an academic credit, or be recognized in some manner on the students’ academic transcript.
Eligible costs that may be covered by XXXXXXXXXX grants include tuition fees, living expenses, dependent care, health insurance, immunizations, transportation and accommodation. We understand that grants are paid to students by their respective educational institution in Canada.
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
The broad scope of the terms scholarship and bursary
Under paragraph 56(1)(n) of the Act, scholarships, fellowships, bursaries and similar prizes received by a taxpayer are included in income in the year of receipt, to the extent that the amount received exceeds the recipient’s scholarship exemption for the year. The amount for the scholarship exemption is determined under subsection 56(3) of the Act.
Based on paragraphs 3.7 to 3.9 of Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance (Folio 1), the terms scholarship and bursary are very broad and could encompass any form of assistance that enables a student to pursue their education. This can include amounts that are directly related to the cost of the education and amounts paid to defray related living expenses. Namely, if a scholarship or bursary program provides allowances or reimbursements to pay for specific educational costs, such as those for lodging, personal travel, tools, books, equipment, technical aids, tutoring, note-taking, interpreting, specialized transportation, attendant care or dependent care, those amounts would generally fall within the scope of subparagraph 56(1)(n)(i) of the Act.
Based on the foregoing, the types of costs that are covered by XXXXXXXXXX grants to allow students to participate in international education opportunities, seem to be captured under the description of scholarships and bursaries. Therefore, XXXXXXXXXX grants would fall under the scope of subparagraph 56(1)(n)(i) of the Act; however, the extent to which XXXXXXXXXX grants may have to be included in income would largely depend on the amount of the scholarship exemption available to the grant recipient.
Qualifying student
Eligibility for the scholarship exemption under subparagraph 56(3)(a)(i) of the Act relies on an individual’s eligibility as a “qualifying student,” as defined in subsection 118.6(1) of the Act. Eligibility as a qualifying student relies on the individual being enrolled at a “designated educational institution” (DEI) in a “qualifying educational program” (QEP) or a “specified educational program” (SEP), all of which are defined in subsection 118.6(1) of the Act. These terms are discussed in Income Tax Folio S1-F2-C1, Qualifying Student and the Education and Textbook Tax Credits (Folio 2), and, as such, we will not be repeating these definitions in detail for the purposes of this query.
Broadly speaking, and among other criteria, both QEPs and SEPs must run for at least three consecutive weeks. A QEP has the added requirement that each student taking the program spend not less than 10 hours per week on courses or work in the program.
In terms of whether an individual is considered a qualifying student, such a determination must be made on a monthly basis and is always a question of fact. In the context of the XXXXXXXXXX, a qualifying student for a month in a tax year is an individual who, in the particular month, is either enrolled:
- in a QEP as a FT student – referred to, herein, as a FT qualifying student; or
- in a SEP that provides that each student in the program spend not less than 12 hours in the month on courses in the program. We refer herein to such students as PT qualifying students, and to the condition relating to the SEP as the 12-hour requirement.
In Canada, Form T2202 - Tuition and Enrolment Certificate, is the appropriate form to substantiate that an individual meets the definition of a qualifying student. Students must be able to prove enrollment by filing Form T2202 if so requested by the Canada Revenue Agency.
Relevant provisions of the scholarship exemption
The scholarship exemption is calculated pursuant to the provisions in subsection 56(3) of the Act, subject to the limitations in subsection 56(3.1) of the Act. The exemption can be viewed as consisting of multiple components, many of which may not apply to a particular situation. For the purposes of the XXXXXXXXXX, the following would generally be relevant:
- The scholarship exemption under subparagraph 56(3)(a)(i) of the Act permits the full amount of a scholarship, fellowship or bursary (collectively referred to as “an award”) to be excluded from income if the particular award is received in connection with a taxpayer’s enrolment in an educational program in respect of which the taxpayer is a qualifying student in the tax year, in the immediately preceding tax year or in the following tax year. Therefore, in the context of the XXXXXXXXXX, the full exemption under subparagraph 56(3)(a)(i) of the Act would apply to FT qualifying students.
- However, paragraph 56(3.1)(b) of the Act limits the amount of the scholarship exemption that is allowable in certain situations applicable to PT qualifying students. Where a taxpayer is enrolled on a PT basis in an educational program, the scholarship exemption is limited to the total of the cost of materials related to the educational program (see paragraph 3.94 of Folio 1) and fees paid to a DEI in respect of the educational program. In our view, the term “program” in paragraph 56(3.1)(b) of the Act refers to the specific educational program in respect of which the taxpayer is a PT qualifying student.
- The basic scholarship exemption under paragraph 56(3)(c) of the Act allows a taxpayer to exclude up to an additional $500 from income, where the total exemption computed under the remainder provisions in subsection 56(3) of the Act is less than the total of all amounts used in computing the taxpayer’s income under subparagraph 56(1)(n)(i) of the Act. In other words, the total scholarship exemption for a year cannot be more than the total scholarships and other awards that were received in the year. It is of note that the basic scholarship exemption is applied against the total amount of all scholarships or bursaries received in a year, as opposed to each one separately. An individual who receives more than one scholarship in a year cannot claim more than the maximum basic scholarship exemption of $500.
An individual who receives a scholarship or bursary (such as the XXXXXXXXXX grant) is likely to benefit from the basic scholarship exemption even if they do not meet the definition of qualifying student. They can reduce the amount of the grant received by up to $500 and report the remaining balance as income (on line 13010 of the Income Tax and Benefit Return), keeping in mind that the exemption in this case is limited to the lesser of $500 or the amount of grant they actually received.
Where an individual cannot benefit from the full scholarship exemption because they are a PT “qualifying student,” the individual will generally be able to claim both a limited exemption and the basic scholarship exemption. This means that the individual’s total exemption would consist of the cost of materials related to the program, the fees paid to a DEI in respect of the program, and an additional amount up to $500 (the basic scholarship exemption). Amounts that the individual may have received for living expenses, travel, transportation, and accommodation would not count toward the scholarship exemption.
Note: The limitation in paragraph 56(3.1)(b) of the Act does not apply to students who are eligible for the disability tax credit or cannot be enrolled on a FT basis because of a mental or physical impairment.
Where an individual can benefit from the full scholarship exemption because they are a FT qualifying student, the exemption will generally include amounts such as those received for travel, transportation and accommodation. In other words, such amounts would not generally be included in the student’s income. This being said, a scholarship or bursary will not be considered to be received in connection with the individual’s enrolment in an educational program except to the extent that it is reasonable to conclude that the award is intended to support the individual’s enrolment in the program. This requires consideration of all the circumstances, including the terms and conditions that apply in respect of the award, the duration of the program and the period for which the support is intended to be provided.
For example, if a FT qualifying student receives a XXXXXXXXXX grant of $10,000 that is intended to provide support for one year of study abroad, but the student enrols only in a three-week educational program, the extent to which the grant will be eligible for the scholarship exemption will be limited to what is reasonable in respect of the three-week program.
Additionally, as noted in paragraph 3.97 of Folio 1, a scholarship or bursary will generally be considered to be intended to support an individual’s enrolment in a program unless it significantly exceeds the individual’s tuition fees, living expenses and other expenses associated with undertaking the program.
Reporting requirement
Pursuant to subsection 200(2) of the Income Tax Regulations, every payer of a scholarship or bursary must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income. This is the case even though the recipient may be entitled to exclude all or a portion of the amount from income because of the scholarship exemption. It is the responsibility of the recipient to determine the amount of any scholarship exemption available.
This being said, under the Canada Revenue Agency’s administrative position, a payer is only required to issue a T4A slip when the total payments in a calendar year exceed $500 or when income taxes are withheld from these payments.
Additional points to consider in the context of the XXXXXXXXXX
a) Outbound experiences lasting less than three consecutive weeks
Based on the information we received, all XXXXXXXXXX grant recipients seem to meet the condition of being enrolled at a DEI (in this case, the DEI is a university or college in Canada); however, not all recipients may be enrolled in a QEP or SEP at the DEI. In these instances, the grant recipients would not be considered to be qualifying students. For example, based on one of the scenarios that we were asked to comment on, a student in a given term can choose to only be enrolled in a two-week study-abroad program at the DEI. When this is the case, the student would not be enrolled in a QEP or SEP. The student would not be considered a qualifying student and therefore, only the basic scholarship exemption (up to a maximum of $500) would be available to the student.
It is worth noting, however, that depending on the situation, a student who engages in an international education activity of less than three consecutive weeks may also be able to claim a full scholarship exemption. More specifically, the international education activity must be a component of a course or program in which the student is enrolled, and that course or program must be a QEP or a SEP that meets the minimum three consecutive week duration.
b) International education activities consisting of internships / work placements
It is our understanding that students may receive XXXXXXXXXX grants to participate in internships or work placements abroad (in relation to which the student may or may not receive remuneration), as part of a work-study program. While DEIs in Canada may consider these students to be enrolled as FT students during these placements, the students may not necessarily be considered to be qualifying students for the purpose of the scholarship exemption. To that effect, we retain the following from paragraph 1.27 of Folio 2:
“1.27 Some designated educational institutions provide co-operative courses in which the student attends for an academic period and then works for one or more co-op terms in a business or industry relating to the student’s academic studies. The student is regarded as being enrolled as a full-time student only during those months in which the designated educational institution is attended.”
Therefore, in our view, XXXXXXXXXX grant recipients may be able to benefit from the full scholarship exemption, provided that they are enrolled in a QEP as FT students, and actually attend a DEI (e.g., online through their home institution) on a FT basis while concurrently completing their internship or work placement.
Similarly, it is our view that XXXXXXXXXX grant recipients may be able to benefit from a limited scholarship exemption, in addition to the basic scholarship exemption, provided that they are enrolled in a SEP that meets the 12-hour requirement, and they actually attend a DEI (e.g., online through their home institution) on a PT basis while concurrently completing their internship or work placement. As explained above, the scholarship exemption available to PT qualifying students is limited to the total of the cost of materials related to the educational program, the fees paid to a DEI in respect of the educational program, and the basic scholarship exemption. When this is the case, XXXXXXXXXX grant recipients would be precluded from claiming any amounts that they may have received for living expenses, travel, transportation, and accommodation for the purpose of calculating their scholarship exemption.
XXXXXXXXXX grant recipients who enrol at a DEI solely to engage in an international work experience opportunity (internship or work placement) of less than three consecutive weeks, without concurrently attending a DEI, are unlikely to be considered qualifying students. As such, their scholarship exemption is likely to be limited to the basic scholarship exemption.
c) Determining whether a full or partial scholarship exemption would apply
As we mentioned earlier, eligibility for the scholarship exemption relies on an individual’s eligibility as a qualifying student in respect of the educational program in connection with which the scholarship or bursary is received. Such eligibility is determined on a month-to month basis, and relies in turn on the student’s enrolment in an educational program that meets the definition of either a QEP or a SEP.
Therefore, in respect of a particular educational program (e.g., an undergraduate degree program), an individual can potentially be a FT qualifying student, a PT qualifying student, or not a qualifying student within the same semester / term, depending on the particular month that is being considered. To that effect, we retain the following excerpt from paragraph 1.15 of Folio 2:
“1.15 To be a qualifying educational program as defined in subsection 118.6(1) of the Act, a program must run for at least three consecutive weeks and must require instruction or work in the program of at least ten hours a week throughout its duration and not simply for a minimum three-week period. Thus, a student taking several courses for three weeks out of an entire semester and meeting the ten hours per week requirement for those three weeks only, but not throughout the remainder of the semester, may [..] be considered a qualifying student for the months in which the qualifying three weeks occurred but would not […] be considered a qualifying student for the remainder of the semester. In such a case, the student would be considered to have followed two different programs during that semester, the program that qualified and the remainder that did not.”
Similarly, we would consider a student to have followed two different programs if the required number of hours on courses or work in a particular program (e.g., an undergraduate program) were to change from one semester / term to the next. For example, if an individual is normally enrolled as a FT student in a four-year undergraduate degree program, yet changes their enrollment to PT in a single term to only enrol in a three-week study-abroad program (other than a co-op placement / internship) during a particular month (whether in the summer or otherwise), we are likely to consider the student to have followed both a QEP and a SEP. Assuming that the SEP meets the 12-hour requirement, the student in this case will likely be considered a PT qualifying student in respect of the study-abroad program. Therefore, if the student in this scenario were to receive a XXXXXXXXXX grant to cover the duration of the study-abroad program, the scholarship exemption would be calculated on the basis that the student was a PT qualifying student in the particular month. As such, the total scholarship exemption would consist of the cost of materials related to the study-abroad program, the fees paid to a DEI in respect of that program, and the basic scholarship exemption .
On the other hand, if the student in the scenario above were to take other courses alongside the PT study-abroad program to bring their status to FT, the student would likely be eligible for the full scholarship exemption. The foregoing is based on the assumption that there is only one enrollment at one DEI. However, in situations involving two or more PT enrollments, certain conditions would have to be met. Namely, as per paragraph 1.28 of Folio 2, an individual will be considered to be enrolled as a FT student for purposes of the definition of a qualifying student when that individual is enrolled PT at two or more DEIs for the same period of time, if the courses undertaken by the student represent a single program of study that would otherwise qualify as a QEP, and the combined hours spent on the courses or work in the program equal at least ten hours per week.
In relation to the foregoing, where a student is enrolled both in a DEI in Canada and an educational institution outside Canada, the latter institution (if it is not at a commuting distance with the U.S.) would not generally be considered to be a DEI unless it is a university.
We trust our comments will be of assistance.
Yours truly,
Lita Krantz, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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