2014-0529481E5 SCHOLARSHIP EXEMPTION

Principal Issues: What portion of an amount received as a bursary is eligible for the scholarship exemption?

Position: It is a question of fact.

Reasons: A bursary will not be considered to be received in connection with the taxpayer’s enrolment in an educational program except to the extent that it is reasonable to conclude that the bursary is intended to support the taxpayer’s enrolment in the program. Generally a bursary is considered to support a taxpayer’s enrolment in a program unless it significantly exceeds the taxpayer’s tuition fees, living expenses and other expenses associated with undertaking the program.

Author: Wirag, Eric
Section: 56(1)(n); 56(3); 56(3.1)

XXXXXXXXXX
2014-052948
Eric Wirag, CPA, CMA
(613) 957-2090

August 20, 2014

Dear XXXXXXXXXX,

We are replying to your letter of March 18, 2014, in which you asked for our comments regarding an amount you received as a bursary to assist you in obtaining your Master’s degree. More specifically, you are asking if any of this bursary would be included in income for the year as a result of subsection 56(3.1) of the Income Tax Act (the “Act”), which limits the amount of the scholarship exemption in certain situations.

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 70-6R5, Advance Income Tax Rulings.

Generally, amounts received in the course of business, or amounts received in respect of, or by virtue of an office or employment are taxable, unless specifically excluded by another provision of the Act. Similarly, amounts received in a tax year to enable an individual to carry on research or similar work are generally research grants included in income under paragraph 56(1)(o) of the Act, to the extent that the amount exceeds the total of any allowable research expenses. 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 to the extent that the total of these amounts exceed the scholarship exemption available under subsection 56(3) of the Act.

You have indicated that you received a bursary to support you in your studies, and that no conditions were attached to the amount received, other than the pursuit of your Master’s degree.

Although the term “bursary” is not defined in the Act, its meaning is broad enough to encompass almost any form of financial assistance that enables a student to pursue his or her education. To qualify as a bursary, the primary purpose of the assistance must be to assist an individual with furthering his or her education. Additionally, a student is not normally expected to do specific work for the payer in exchange for the bursary.

There is a basic $500 exemption for scholarships, bursaries, fellowships or prizes for achievement included in computing an individual’s income under paragraph 56(1)(n) of the Act. Additionally, paragraph 56(3)(a) of the Act permits a scholarship exemption in excess of the $500 basic exemption if the particular scholarship, bursary, fellowship or prize for achievement is received in connection with the individual’s enrolment in an educational program in respect of which the education tax credit may be claimed for the tax year, for the immediately preceding tax year or for the following tax year.

However, subsection 56(3.1) of the Act limits the available scholarship exemption in certain situations. According to paragraph 56(3.1)(a) of the Act, 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. Paragraph 56(3.1)(b) provides an additional limitation on the scholarship exemption if the scholarship or bursary is received in connection with a program for which a part-time education tax credit can be claimed.

As noted in paragraph 3.97 of Income Tax Folio S1-F2-C3: Scholarships, Research Grants and Other Education Assistance, 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. Such a determination will be a question of fact and can only be made on a case-by-case basis.

An example of a situation where subsection 56(3.1)(a) of the Act could apply is provided in the Department of Finance technical notes. In this example, an individual receives a bursary which suggests that it is intended to provide support for one year of study. If the individual then only enrolls in a three-week educational program, the scholarship exemption for this individual would be limited to an amount that is reasonable, in respect of the three-week program. The balance of the bursary would be taxable to the individual.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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