2022-0956531I7 Tax treatment of tuition reimbursements

Principal Issues: Whether tuition reimbursements paid by the Government of Manitoba to students in recognized early childhood education programs that lead to ECE II and ECE III certification, would be taxable in the hand of recipients.

Position: The reimbursements would be included in the recipients' income under paragraph 56(1)(n) to the extent that the amount exceeds the recipient’s scholarship exemption.

Reasons: The wording in 56(1)(n).

Author: El-Kadi, Randa
Section: Definitions in 118.6(1); 56(1)(n); 56(3); 56(3.1)

                                                                                January 13, 2023

Greg Mayberry
Intergovernmental Relations Advisor /
Western Region HEADQUARTERS
Partnerships Directorate                                        Income Tax Rulings Directorate
Provincial and Territorials Affairs Division              Randa El-Kadi
Service, Innovation and Integration Branch

                                                                                2022-095653

Tax treatment of tuition reimbursements

We have reviewed the limited information available on the Government of Manitoba website regarding the early childhood educator (ECE) tuition reimbursement. Based on the webpage titled ECE Tuition Reimbursement, the reimbursement is intended to help cover tuition-related costs of recognized ECE programs offered at post-secondary educational institutions in Manitoba that lead to an ECE II or ECE III certification.

It is our view that the ECE tuition reimbursement would be considered a bursary, given that it helps students pursue their education. Scholarships and bursaries are included in the recipient’s income in the year of receipt pursuant to paragraph 56(1)(n) of the Income Tax Act (the Act), but only to the extent that they exceed the recipient’s scholarship exemption for the year.

The scholarship exemption is calculated under subsection 56(3) of the Act and exempts the first $500 (commonly referred to as the basic scholarship exemption) of a scholarship or bursary, or in certain situations, up to the full amount. More specifically, the total amount of scholarship income may be eligible for a full scholarship exemption (and therefore, not subject to income tax), if the scholarship or bursary is received in connection with the recipient’s enrolment in an educational program in respect of which they are considered a full-time (FT) “qualifying student”* in the year, in the immediately preceding tax year or in the following tax year.

* A “qualifying student” for a month in a tax year includes an individual who, in the month, is enrolled in a “qualifying educational program” (QEP) as a FT student at a “designated educational institution” (DEI). A QEP is a program that lasts at least three consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). A program is excluded from the definition of QEP if, for example, the program-related expenses are paid for, or reimbursed by a student’s employer. A DEI includes colleges and universities in Canada. All the terms in quotations are defined in the Act and discussed in Income Tax Folio S1-F2-C1, Qualifying Student and the Education and Textbook Tax Credits. As such, we will not be repeating these definitions in detail for the purposes of this query.

In the present case, unless a student’s tuition fees are paid for, or reimbursed by their employer, it is our view that FT students in a recognized ECE program are likely to be considered FT qualifying students, and therefore, the ECE tuition reimbursement they receive is likely to be fully excluded from income.

Where a bursary or scholarship recipient is considered a part-time (PT) qualifying student,* the scholarship exemption would generally consist of the cost of materials related to the program, the fees paid to a DEI in respect of the program, and an additional amount up to $500 (the basic scholarship exemption). The total scholarship exemption for a year cannot be more than the total scholarships, bursaries and similar awards that were received in the year.

*A PT qualifying student for a month in a tax year includes a student who is enrolled at a DEI in a program that a) would be a QEP except for the minimum 10-hour per week requirement (for instruction or work in the program) and b) provides that each student in the program spend not less than 12 hours in the month on courses in the program.

In the present case, unless a student’s tuition fees are paid for, or reimbursed by their employer, it is our view that PT students in a recognized ECE program are likely to be considered PT qualifying students. Therefore, the ECE tuition reimbursement they receive is likely to be partially excluded from income. More specifically, the scholarship exemption in these cases would consist of the following: a) the cost of materials related to the program (or course(s)),     b) the fees paid to a DEI in respect of the program (or course(s)), and c) an additional amount up to $500 (the basic scholarship exemption). PT student can determine their scholarship exemption by completing the chart on the Canada Revenue Agency (CRA) webpage titled Scholarship Exemption – Part-time enrolment. Additional information about the scholarship exemption as it applies to FT and PT students can be found in paragraphs 3.91 and 3.93 of Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance.

It is of note that the basic scholarship exemption (up to $500) is applied against the total amount of all scholarships or bursaries received in a year, as opposed to each one separately. In other words, an individual who receives more than one scholarship or bursary in a year may not claim a basic scholarship exemption in excess of $500.

Practicums

It is our understanding that students in recognized ECE programs (namely those outside the workplace program) are generally expected to have one full term per year dedicated to practicums. Although a DEI may assign credit hours to these practicums or consider students to be enrolled FT during a practicum, it is the CRA’s longstanding position that students would not be considered to be enrolled FT at a DEI unless they are actually attending the DEI. To that effect, we note the following excerpt from ¶1.27 of Income Tax Folio S1-F2-C1:

“1.27 Some designated educational institutions provide co-operative courses in which the student attends for an academic period and then works for one or more co-op terms in a business or industry relating to the student’s academic studies. The student is regarded as being enrolled as a full-time student only during those months in which the designated educational institution is attended.”

In the present case, it appears that FT ECE programs (other than FT workplace programs) offer terms that are solely dedicated to practicums, in the sense that students would not be attending a DEI while concurrently completing a practicum. It is also unclear to us whether students are required to pay tuition fees for their practicums and, as such, whether they may be able to apply for, and receive the ECE tuition reimbursement for a term that consists solely of a practicum. In the affirmative, it seems unlikely that students would be considered qualifying students during such terms, and their scholarship exemption is likely to be limited to the basic scholarship exemption (up to a maximum of $500).

Reporting requirement

Pursuant to subsection 200(2) of the Income Tax Regulations, every payer of a scholarship or bursary must report the amount on a T4A Slip, Statement of Pension, Retirement, Annuity and Other Income. This is the case even though the recipient may be entitled to exclude all or a portion of the amount from income because of the scholarship exemption. It is the responsibility of students (the recipients) to determine the amount of any scholarship exemption available.

This being said, under the CRA’s administrative position, a payer is only required to issue a T4A slip when the total payments in a calendar year exceed $500, or when income taxes are withheld from these payments. Given that income tax does not have to be withheld at source from scholarship and bursary amounts, only the former requirement would apply in the present case.

We trust that these comments will be of assistance to you.

Lita Krantz, CPA, CA
Manager
Tax Credits and Ministerial Issues Business and Employment Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

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