28 April 1999 Internal T.I. 9906217 - BURSARIES

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.

Principal Issues:

A private school (the “School”), that charges tuition fees, offers primary and secondary education to its students. If a student’s parent(s) is unable to pay the full tuition fee, the School provides financial assistance by providing a discount in respect of the normal tuition fee that has been charged. The issue is the tax treatment of the financial assistance (i.e., the discount).

Position:

The financial assistance is taxable in the hands of the student under paragraph 56(1)(n) of the Income Tax Act (the “Act”).

Reasons

Pursuant to paragraph 5 of IT-75R3, bursaries are amounts paid or benefits given to students to enable them to pursue their education. Consistent with this definition, the reduction in tuition fees would constitute an “amount” that has been “received” by the student for the purposes of paragraph 56(1)(n) of the Act. (See also E9638655 and E9633495) In connection with these comments the term “amount” is defined in subsection 248(1) of the Act to mean “money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing, except that”. The definition is broad enough to include the financial assistance.

							April 28, 1999

	XXXXXXXXXX  Tax Services Office  	HEADQUARTERS
	XXXXXXXXXX 					M. Eisner
	Revenue Collections			(613) 957-2138

							990621

Financial Assistance - Payment of Tuition Fees

We are writing in response to your enquiry of March 8, 1999 concerning the above-noted subject.

In the circumstances of your situation, XXXXXXXXXX (the “School”) offers primary and secondary education to its students. The School charges tuition fees. If a student’s parent (or parents) is unable to pay a full tuition fee, the School provides financial assistance by providing a discount in respect of the normal tuition fee that has been charged. Employee-employer relationships are not involved.

You have asked about the income tax treatment of the financial assistance that is provided and, if it is taxable, in whose hands it would be subject to tax. You have also asked whether it would make any difference if the School were to be a non-profit organization or provided tiered tuition fees for those in need.

Our Comments

As indicated in paragraph 5 of Interpretation Bulletin IT-75R3, it is the Department’s general position that bursaries are amounts paid or benefits given to students to enable them to pursue their education. It is our view that this definition is broad enough to include almost any form of financial assistance provided or aid to a student to enable the student to pursue his or her education including the providing of a benefit based on the needs of the student.

While the parents of a student (and perhaps the whole family) may, in a sense, benefit in respect of a discount provided by the School, it is our view, consistent with the definition of bursary in paragraph 5 of IT-75R3, that the discount or reduction in tuition fees would constitute an “amount” that has been “received” by the student for the purposes of paragraph 56(1)(n) of the Income Tax Act (the “Act”). It would follow that the financial assistance (subject to the $500 exemption within paragraph 56(1)(n) of the Act) would be taxable in the hands of the student.

A person who pays an amount as a scholarship or bursary is required to report that amount on a T4-T4A Summary and related T4A Supplementaries. As indicated in paragraph 39 of IT-75R3, income tax is not required to be withheld from such amounts.

The fact that the School might be a non-profit organization would not have any effect on the above comments.

As indicated above, it is our general view that the difference between the normal tuition fee and the tuition fee charged in respect of a student of a needy family would still be viewed as a bursary that would, subject to the $500 exemption, be taxable in the hands of the student. However, where a school has implemented a tiered tuition fee schedule based on need, it is a question of fact whether or not students have received benefits on account of bursaries. We would require more details on the tiered tuition program before we could provide more definitive comments on the income tax implications.

If you require further technical assistance, we would be pleased to provide our views.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the Department’s mainframe computer. 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 LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

Jim Wilson
Section Chief
Business, Property & Employment Section II
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch