2021-0890141I7 Scholarship exemption

Principal Issues: Whether financial assistance received by students for the cost of travel, under Indigenous Services Canada’s Post-secondary Student Support Program and Inuit Post-Secondary Education Strategy , would be included in the amount of the student’s scholarship exemption, pursuant to paragraph 56(3) of the Income Tax Act.

Position: Question of fact, but likely yes, if the recipient is considered a qualifying student as defined in subsection 118.6(1) of the Income Tax Act.

Reasons: 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.

Author: Brennan, Christopher
Section: 56(1)(n); 56(3); 56(3.1); 118.6(1)

                                                                                                 July 7, 2021
Service, Innovation, and Integration Branch                   HEADQUARTERS
Federal, Indigenous, and Quebec Affairs Division          Income Tax Rulings Directorate
Indigenous Affairs Section                                                  Chris Brennan, CPA CA

Attention: Cindy Christmas                                                  2021-089014                                                                                       

Re: Scholarship exemption - Indigenous Services Canada post secondary school funding programs

This is in reply to your request for our views on whether financial assistance received by students for the cost of travel, under Indigenous Services Canada’s (ISC) Post-secondary Student Support Program (PSSP) and Inuit Post-Secondary Education Strategy (IPES), would be included in the amount of the student’s scholarship exemption pursuant to paragraph 56(3) of the Income Tax Act (Act).

It is our understanding that the PSSP and IPES, provides financial assistance to eligible students to pursue their post secondary education at eligible institutions. Expenditures that are eligible for financial assistance, under the PSSP and IPES, include expenses associated with travel home.

The PSSP requires that to be eligible, students must be status First Nations and maintain satisfactory academic standing within an eligible post-secondary institution. Eligible post-secondary institutions are degree-, diploma- or certificate-granting institutions that are recognized by a province or territory in Canada or abroad.

The IPES requires that to be eligible, Inuit students must be enrolled full time in a post-secondary program generally recognized through an accrediting body such as the Association of Universities and Colleges Canada, the Association of Canadian Community Colleges or other professional associations and certification boards.

Our comments

Scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. The term bursary is not defined in the Act, however, its meaning is broad enough to encompass almost any form of financial assistance paid to enable a student to pursue their education. Under paragraph 56(1)(n) of the Act, scholarships, fellowships, bursaries and similar prizes received by a taxpayer are included in income in the year of receipt, to the extent that the amount received exceeds the recipient’s scholarship exemption for the year.

Paragraph 3.9 of Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance (the folio) states,

“If a scholarship or bursary program provides allowances or reimbursements to pay for specific educational costs, such as those for lodging, personal travel, tools, books, equipment, technical aids, tutoring, note-taking, interpreting, specialized transportation, attendant care or dependent care, those amounts would generally fall within the scope of subparagraph 56(1)(n)(i)”

Based on the information available, it appears that the financial assistance received by students, under the PSSP and IPES, for travel costs is to enable the students to pursue their education. Therefore, the financial assistance for travel costs would be included in the student’s income pursuant to paragraph 56(1)(n) of the Act, to the extent the amount exceeds the scholarship exemption.

The amount for the scholarship exemption for a taxation year is determined under subsection 56(3) of the Act. Subparagraph 56(3)(a)(i) of the Act includes in a taxpayer’s scholarship exemption the total of all amounts included under subparagraph 56(1)(n)(i) of the Act for the taxation year. These amounts are in respect of a scholarship, fellowship or bursary received in connection with the student’s enrolment in an educational program in which the student is a qualifying student (as defined in subsection 118.6(1) of the Act) in the taxation year, in the immediately preceding taxation year or in the following taxation year.

Based on the information available, it appears likely that the majority of students, receiving financial assistance under the PSSP and IPES, would be considered a qualifying student. However, this determination is always a question of fact.

Subsection 56(3.1) of the Act limits the 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.

As noted in paragraph 3.97 of the folio, 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.

It is always a question of fact whether a particular award to a student would satisfy the condition of paragraph 56(3.1)(a) of the Act. Based on the information obtained, the financial assistance received by students (including the financial assistance for travel costs) under the PSSP and the IPES is intended to support the individual’s enrolment in a post-secondary program and would likely satisfy the conditions outlined in paragraph 56(3.1)(a) of the Act. Therefore, the total amount of financial support received by a student, under the PSSP and the IPES, will be eligible for the scholarship exemption for full-time qualifying students, and would therefore not be included in the students income, for purposes of paragraph 56(1)(n) of the Act.

It is our understanding that part-time students, may receive assistance for tuition and fees, the cost of books and supplies and assistance for living allowances or travel under the PSSP and IPES. In circumstances where the student is considered a part-time qualifying student, paragraph 56(3.1)(b) of the Act limits the scholarship exemption to the sum of the tuition and the costs of program-related materials. This limitation does not apply to students who are eligible for the disability tax credit or cannot be enrolled on a full-time basis because of a mental or physical impairment.

Therefore, the financial assistance received by a student for the cost of materials related to the program and the fees paid to the designated educational institution in respect of the program, under the PSSP and the IPES, may be eligible for the scholarship exemption for part-time qualifying students. Financial assistance for living allowances and travel costs received by part-time qualifying students, under the PSSP and the IPES, would not be included in the students scholarship exemption under paragraph 56(3)(a) of the Act.

It is our understanding that PSSP is only available to First Nations post-secondary students who are Indians, as that term is defined in section 2 of the Indian Act. As such, financial support received under the PSSP is eligible for the exemption under section 87 of the Indian Act where the educational program takes place on-reserve. Such a determination will be a question of fact and can only be made on a case-by-case basis.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust that these 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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