2014-0516501E5 Educational assistance

Principal Issues: Does paragraph 56(1)(n) of the Act apply to the various payments (tuition, dependent care, living allowances, books, travel, etc), made to the participants of the program?

Position: a. Where the funding is provided through a program that is established under the Canada-XXXXXXXXXX Labour Market Development Agreement, the amounts appear to meet the criteria of subparagraph 56(1)(r)(iii) and would be included in income under that provision. b. Where the funding is provided from other programs that do not meet the criteria of paragraph 56(1)(r), the amounts would be considered bursaries under paragraph 56(1)(n).

Reasons: a. The preamble to the LMDA states that it is the subject of an agreement between the XXXXXXXXXX and the Canada EI Commission because of section 63 of the EI Act, and is similar to a program established under Part II of the EI Act. b. Not all assistance provided appears to meet the requirements of paragraph 56(1)(r). The primary purpose of the funding is to allow the clients to pursue their education.

Author: Wirag, Eric
Section: 56(1)(r)(iii); 56(1)(n); 56(1)(u)

XXXXXXXXXX                                      2014-051650
                                                              Eric Wirag, CPA, CMA
                                                              (613) 670-9053

July 17, 2015

Dear XXXXXXXXXX,

We are replying to your letter dated November 28, 2013, in which you asked whether paragraph 56(1)(n) of the Income Tax Act (the “Act”) would apply to financial assistance received by clients for educational assistance under the Employment Program XXXXXXXXXX (the “Program”). We also acknowledge our telephone conversation of November 4, 2014, between members of the Income Tax Rulings Directorate, the XXXXXXXXXX and the XXXXXXXXXX.

It is our understanding that the Program supports clients in achieving sustainable employment through a variety of measures, such as employment counselling, services, and financial supports. You state in your letter that clients meet eligibility for financial assistance through the Program based on a “means, needs and income test.” The Program is administered through various delivery organizations throughout the province, and the financial assistance is provided through these delivery organizations.

Clients who are eligible for educational assistance under the Program can receive various financial supports to assist them in obtaining an education, such as for tuition, living supports, dependent care, transportation, books, supplies, etc. These amounts can be paid directly to the individual or paid to a third party for the benefit of the client.

Our comments:

This technical interpretation provides general comments about the provisions of 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 IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations. You have explained that the intention of the Program is to replace the employment programs and services funded under Part II of the Employment Insurance Act (the “EI Act”) and the employment programs targeting XXXXXXXXXX recipients. Additionally, the Program must meet all of the applicable legislative and regulatory requirements listed in XXXXXXXXXX of the Program Policy Manual, of which you provided an excerpt. The list of applicable legislative and regulatory requirements includes section 63 of the EI Act, the Canada-XXXXXXXXXX Labour Market Development Agreement (“LMDA”), and other legislative and regulatory requirements and agreements. However, it is unclear to us exactly how each program under the Employment Program XXXXXXXXXX was established, and which of the legislative and regulatory requirements are applicable to each program or type of financial assistance. Therefore, we are providing the following general comments to assist you.

Paragraph 56(1)(r) of the Act

Paragraph 56(1)(r) of the Act requires that certain benefits and training-related amounts received by an individual in the year are to be added in computing income. Financial assistance paid to an individual or paid to a third party for the benefit of an individual is included in income under subparagraph 56(1)(r)(iii) of the Act if the financial assistance is provided under a program that is:

(i)   established by a government or government agency in Canada or by an organization,

(ii)  similar to a program established under Part II of the the EI Act, and

(iii) the subject of an agreement between the government, government agency or organization and the Canada Employment Insurance Commission because of section 63 of the EI Act. 

The preamble to the LMDA states that the agreement is established between the XXXXXXXXXX and the Government of Canada, as represented by the Minister of Human Resources and Skills Development and the Canada Employment Insurance Commission. It also states that the Government of Canada “is authorized under section 63 of the EI Act to enter into the agreement with the XXXXXXXXXX to provide for payment of contributions towards the costs and benefits that are similar to employment benefits and support measures established under Part II of the EI Act, and that are consistent with the purpose and guidelines of Part II of that Act.” 

Therefore, based on the noted criteria in the preamble of the LMDA, it is our view that financial assistance provided under a program that is established by a government or organization and is subject of the LMDA meets the requirements of subparagraph 56(1)(r)(iii) of the Act, and the amounts would be included in the income of the client for the year under that provision. This would apply to financial assistance paid directly to the client or paid to a third party for the benefit of the client. It is also our view that the provisions of paragraph 56(1)(r) of the Act would apply before other provisions of the Act, such as paragraph 56(1)(n). Paragraphs 3.79 to 3.83 of Income Tax Folio S1-F2-C3: Scholarships, Research Grants and Other Education Assistance, describes financial assistance that is included in income under paragraph 56(1)(r) of the Act. As noted in paragraph 3.80 of the Folio, paragraph 56(1)(r) of the Act can apply to training benefit amounts (including allowances) for tuition, books, equipment, travel assistance, lodging or dependent care. Recipients of these benefits and amounts will be taxed regardless of whether the benefits or payments are provided by the Canadian federal government, another level of Canadian government or an organization under a devolution agreement.

If a client receives financial assistance for the payment of tuition fees for basic adult education that are not included in computing an amount for the tuition tax credit under subsection 118.5(1) of the Act for any taxation year, a deduction is available under paragraph 110(1)(g) if certain conditions are met. If the assistance is received by the taxpayer under a program referred to under subparagraph 56(1)(r)(ii) or (iii), the amount is not otherwise deductible in computing the taxpayer’s taxable income and the amount is included in computing the income of the taxpayer’s income for the year, the deduction under paragraph 110(1)(g) of the Act is available. The deduction applies only to assistance for tuition fees and not to other types of assistance a student may receive in connection with the student's training.

Paragraph 56(1)(n) of the Act

Amounts received as or on account of a scholarship, bursary, fellowship or prize for achievement are included in income under paragraph 56(1)(n) of the Act. Although the term “bursary” is not defined in the Act, it has been a long-standing position of the Canada Revenue Agency that the definition of bursary is broad enough to encompass almost any form of financial assistance that enables a student to pursue his or her education.

Therefore, where educational assistance provided to clients of the Program does not meet the requirements of paragraph 56(1)(r) of the Act, the amounts would likely be considered a bursary and included in income under paragraph 56(1)(n) of the Act. These amounts would be included in the income of the client to the extent that the total of these amounts exceed the scholarship exemption available in subsection 56(3) of the Act.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015