22 July 2004 Ministerial Correspondence 2004-0070641M4 - Status Indians and post secondary education

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 post secondary education assistance payments taxable to status Indian recipients?

Position: The CRA's position on the taxation of PSE scholarships paid to or for the benefit of status Indians is currently under review. The results of the review and the resulting policy will be announced prior to December 31, 2005. Until that time, PSE scholarships will continue to be treated as tax-exempt.

Reasons: A PSE scholarship may be tax-exempt in two ways:

if it is paid pursuant to a treaty, then it is deemed to be located on a reserve by section 90 of the Indian Act, in which case it is exempt by operation of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.

in the absence of a treaty right, section 87 may exempt the PSE scholarship if a connecting factors test can situate the scholarship on a reserve. This determination will be a question of fact.

The CRA's position has been based on the Greyeyes case in which the parties agreed that the scholarship was paid pursuant to a treaty. The CRA is reviewing whether it is appropriate to apply this approach to all status Indian PSE scholarships.

Signed on July 22, 2004

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your letter of March 31, 2004, addressed to his predecessor, the Honourable Stan Keyes, concerning the taxation of post secondary education assistance payments paid to or for the benefit of status Indian students. I apologize for the delay in responding.

When a scholarship or bursary is received by a status Indian, paragraph 81(1)(a) of the Income Tax 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. Consequently, what must be determined is whether the scholarship or bursary received by a status Indian is situated on a reserve.

Paragraph 90(1)(b) of the Indian Act provides that for the purposes of section 87 of that Act, personal property that was given to status Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on a reserve. In other words, personal property given to a status Indian pursuant to a treaty with Her Majesty will be tax exempt.

Indian and Northern Affairs Canada (INAC) is responsible for interpreting and communicating information regarding treaties with First Nations. For information concerning whether status Indians have a treaty right to post-secondary education and whether any consultation process was undertaken in making this determination, you may wish to contact INAC.

As well, section 87 of the Indian Act can exempt the personal property of a status Indian from taxation is if there are significant factors that connect that property to a reserve. This requirement reflects the test laid out by the Supreme Court of Canada in Williams v. The Queen. In all cases, determining whether sufficient connecting factors exist to support a tax exemption will be a question of fact.

The current position of the Canada Revenue Agency (CRA) regarding the tax treatment of post-secondary education assistance for status Indians is based on Greyeyes v. the Queen. The statement of agreed facts submitted by the parties to the Greyeyes case stated that Ms. Greyeyes' scholarship was received pursuant to an agreement and treaty between the Plaintiff's band and Ottawa and 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 CRA is now reviewing whether its reliance on this court case is appropriate for all post-secondary education assistance payments to status Indians. However, pending the completion of this review, post-secondary education assistance payments, such as scholarships or bursaries, that may be paid either directly from INAC or through a First Nation to or on behalf of a status Indian student before January 1, 2006, will continue to be tax-exempt and will not have to be reported on a T4A, Statement of Pension, Retirement, Annuity and Other Income.

Thank you for bringing your concerns to the CRA's attention.

							Yours sincerely,

							Stephen Rigby
							Assistant Commissioner
							Policy and Planning Branch

Renée Shields
(613) 948-5273
2004-007064
July 6, 2004