2018-0775971E5 XXXXXXXXXX to reduce student loan debt

Principal Issues: Whether XXXXXXXXXX amount paid by the Government of XXXXXXXXXX on behalf of an individual to reduce their student loan debt would be taxable under the Income Tax Act.

Position: It is unlikely that the amount would be taxable.

Reasons: The amount does not appear to be income from a source or to be taxable under any provision of the Income Tax Act.

Author: El-Kadi, Randa
Section: Various provisions were considered, such as 12(1)(x); 56(1)(n); 56(1)(r); 56(1)(u); and 56(2); and section 7300 of the Income Tax Regulations.

XXXXXXXXXX                                                                                                      2018-077597
                                                                                                                              Randa El-Kadi
November 21, 2018

Dear XXXXXXXXXX:

Re:   The XXXXXXXXXX to reduce student loans

We are replying to your email of August 28, 2018, regarding the tax treatment of the XXXXXXXXXX.

You explain that the Government of XXXXXXXXXX pays a XXXXXXXXXX of up to $XXXXXXXXXX per year to eligible residents. The payment is an incentive to encourage eligible individuals to XXXXXXXXXX. Eligible residents are those who have lived in XXXXXXXXXX for XXXXXXXXXX prior to applying for the XXXXXXXXXX, are resident of XXXXXXXXXX at the time of their application, and have student loans outstanding from any province or territory in Canada. Eligible residents must also have ceased full-time studies for a period of XXXXXXXXXX prior to applying. The lifetime maximum payment is $XXXXXXXXXX. There also appears to be a limit of XXXXXXXXXX approved applications per fiscal year.

You note that, once approved, the XXXXXXXXXX is not paid directly to successful applicants; instead, the Government of XXXXXXXXXX applies it as an offset against the outstanding balance of the successful applicants’ student loans.

Based on your analysis, the XXXXXXXXXX does not appear to be income from a source that would be taxable under section 3 of the Income tax Act (the Act). You are also of the view that the XXXXXXXXXX does not fall under the ambit of any of the provisions in section 56 of the Act, and, therefore, it would not be taxable under the Act.

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 70-6R7, Advance Income Tax Rulings and Technical Interpretations (now updated to IC 70-6R8).

Generally, an amount is taxable under the Act if it constitutes income from a source under section 3, or if a specific provision of the Act applies to the type of payment.

We agree with your analysis that the XXXXXXXXXX, as you described it, cannot be reasonably considered to be income from an office, employment, business or property. Also, the XXXXXXXXXX cannot be considered to be a scholarship or bursary as these terms are used in paragraph 56(1)(n) of the Act, given that the XXXXXXXXXX is not paid to enable eligible applicants to pursue their education. Finally, in our view, it is unlikely that the XXXXXXXXXX would constitute income from a source or be taxable under any provision of the Act.

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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