Chapter History S1-F2-C3, Scholarships, Research Grants and Other Education Assistance

Introduction

The purpose of a Chapter History page is to highlight any amendments to the information contained in a chapter of an income tax folio, including amendments to the information originally contained in an interpretation bulletin that has been cancelled and replaced with a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.

Update December 7, 2020

¶3.100.1 has been added to include a reference to Income Tax Folio S4-F14-C1, Artists and Writers for a discussion of amounts used in the production of a literary, dramatic, musical, or artistic work, as well as the art production grant exemption.

Update September 24, 2020

Throughout the Chapter, references to the title of Income Tax Folio S1-F2-C1 have been changed. The Chapter was formerly entitled Education and Textbook Tax Credits and is now entitled Qualifying Student and the Education and Textbook Tax Credits.

The third sentence of the second paragraph of the Summary has been updated to remove the reference to the Video Series – Canadian students and income tax, as these videos are no longer available.

¶3.18 has been revised to remove the words “on or after October 31, 2011” which followed the word “enjoyed” in the first sentence. The phrase was deleted because the historical application date of subparagraph 6(1)(a)(vi) is unlikely to be of ongoing interest to readers. As well, the third paragraph in ¶3.18 has been removed because information related to periods prior to October 31, 2011 is now of limited application to most taxpayers. The paragraph stated:

“Where the family member of an employee was provided with a scholarship, bursary or free tuition by an arm’s length employer for attendance at an elementary or secondary school (private or otherwise) before October 31, 2011, the amount will be included in the employee's income as a taxable benefit under paragraph 6(1)(a), regardless of the criteria used to award the particular amount. As such, no amount will be included in the family member’s income pursuant to paragraph 56(1)(n).”

¶3.53 has been expanded to provide a cross reference to Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime.

¶3.82 has been revised to replace “taxpayer” with “student” in the 3rd bullet, for consistency purposes.

¶3.87 has been revised to refer readers directly to the Department of Finance Canada webpages for information concerning Canada’s tax treaties with other countries.

¶3.93 has been revised to remove information in the second paragraph concerning the tax treatment of awards received by part-time students prior to 2010. This information is of limited ongoing relevance. The second paragraph of ¶3.93 before the colon formerly read as follows:

“Awards received by a part-time student prior to 2010 may be fully excluded from income pursuant to paragraph 56(3)(a). However, in accordance with paragraph 56(3.1)(b), the amount that may be excluded from income with respect to awards received in 2010 and later tax years is limited to the sum of the following:”

¶3.96 has been revised to remove the words “received after 2009” that immediately followed the words “scholarship, fellowship or bursary.” This revision was made because most taxpayers no longer need to differentiate between the pre and post‑2009 timeframe .

¶3.105 has been revised to remove the final sentence  which formerly read, “RNASO benefits were formerly addressed by paragraph 56(1)(aa) which was renumbered as 56(1)(z.1) applicable after 2009.” This revision was made because differentiating between the pre and post‑2009 timeframe is now unnecessary for most taxpayers. The paragraph has also been expanded to provide readers with a hyperlink to more information on Registered National Arts Service Organizations.

¶3.108 has been revised to reorganize the information previously contained in ¶3.108 and ¶3.110 regarding the income tax treatment of certain education-related benefits provided by an employer to the family member of an employee for attendance at an elementary, secondary or post-secondary school (private or otherwise) on or after October 31, 2011. The revision also removes information regarding the income tax treatment of such benefits prior to that date, since the timeframe is now of limited relevance. The first sentence of ¶3.108 previously stated:

“Where an arm's length employer provides a post-secondary scholarship, bursary or free tuition to the family member of an employee under a scholarship program, the amount will be included in computing the particular student's income under subparagraph 56(1)(n)(i) provided the employee’s salary was not decreased to fund or partially fund the amount; and the payer must report the amount on a T4A Slip to the family member.”

In what is now the fifth sentence of ¶3.108, after the reference to benefits under subparagraph 6(1)(a)(vi), the words “received or enjoyed on or after October 31, 2011” have been removed. The historical application date of subparagraph 6(1)(a)(vi) is unlikely to be of ongoing interest to readers.

¶3.110 has been deleted in its entirety. The paragraph discussed the income tax treatment of education-related benefits received or enjoyed by an employee’s family member(s) prior to October 31, 2011. Given the passage of time, the historical application date is now of little relevance. Information of ongoing relevance in this paragraph has been moved to ¶3.108. Paragraph ¶3.110 formerly stated:

“Where the family member of an employee is provided with a scholarship, bursary or free tuition by an arm’s length employer for attendance at an elementary or secondary school (private or otherwise), the amount should be included in the employee's income as a taxable benefit under paragraph 6(1)(a), regardless of the criteria used to award the particular amount and the payer must report the amount on the employee’s T4 Slip. However, see ¶3.18 for important information concerning legislative changes affecting the income tax treatment of certain education related benefits received or enjoyed by an employee’s family member(s) on or after October 31, 2011. Under these changes, awards received by family members for attendance at an elementary or secondary school are treated in the same manner as post-secondary awards (see ¶3.108).”

¶3.112 has been updated to refer to line number 13010 in the link for Scholarships, fellowships, bursaries, study grants, and artists’ project grants. Line 13010 was line 130 before the 2019 tax year.

Update April 26, 2017

The second paragraph of the Summary has been updated to refer to "various tax credits available" and to delete the reference to the education tax credit.

¶3.6.1 and 3.90.1 have been added to identify the elimination of the education tax credit for tax years beginning in 2017 made by S.C. 2016, c.7, s.16 (formerly Bill C-16).

¶3.17, 3.19, 3.91, 3.93 and 3.102 have been updated to reflect the changes identified in ¶3.6.1 for tax years prior to 2017 and tax years after 2016.

¶3.82 has been updated to reflect that for purposes of paragraph 110(1)(g), the CRA’s interpretation of what constitutes basic education has been expanded to include forms of training in addition to primary or secondary level education.

¶3.95 has been updated to refer readers to a page on the CRA website instead of to Pamphlet P105 since the chart showing how to calculate a part-time student’s scholarship exemption is no longer included in Pamphlet P105.

Update November 24, 2015

Minor changes have been made to improve the usability of the income tax folios:

• the Summary section has been moved to the top of each folio chapter to be more immediately visible and helpful to readers;
• the Application and Reference sections have been moved to the end of the Chapter which is more appropriate for administrative content of this nature. However, these sections now appear in the Table of contents for easy access;
• the statement that folios are only available in electronic format has been moved to the end of the Application section; and
• the words “as promulgated under the Act” in connection with the Income Tax Regulations have been removed from the Application section, in the interest of using plain language.

Update April 3, 2015

¶3.113 of the French version is revised so that the second sentence more accurately reflects the wording of the Act.

Update May 8, 2014

¶3.17 and 3.39 are revised to refer to and reflect the publication of Income Tax Folio S1-F5-C1, Related persons and dealing at arm’s length, which replaces and cancels Interpretation Bulletin IT-419R2, Meaning of Arm’s Length.

Update March 11, 2014

Throughout the French version of the Chapter and its Chapter History, general revisions have been made to improve readability. The following changes have also been made to the Chapter.

The French version of the chapter has been amended to remove the references to a “bourse d’entretien”. Although the English version of the Act uses two separate expressions for “scholarship” and “bursary”, the French version of the Act uses the general expression “bourse d’études” to describe both concepts. The change has been made to ensure that the French version of the chapter reflects the wording of the legislation.

The Reference section at the beginning of the Chapter has been revised to correct the legislative reference for the definition of “remuneration.”

Throughout the Chapter, the references to the "Department of Human Resources and Skills Development Act" have been changed to the "Department of Employment and Social Development Act", to reflect the legislative amendments made by S.C. 2013, c. 40 (formerly Bill C-4), s. 236.

¶3.18 has been revised to reflect subparagraph 6(1)(a)(vi) which was added by 2012, c. 48, s. 170(1), applicable in respect of benefits received or enjoyed on or after October 31, 2011.

¶3.21 has been expanded to include additional discussion on training allowances which are subject to paragraph 56(1)(r).

¶3.22 has been modified by changing the reference to the Department of Human Resources and Skills Development Canada (HRSDC) to the Department of Employment and Social Development, to reflect the legislative amendments made by S.C. 2013, c.40 (formerly Bill C-4), s. 237 and 238. The paragraph has also been amended to remove the cross reference to ¶3.79 which now appears in ¶3.21.

¶3.49 to 3.51 have been amended to describe the recipient of the award in each instance as a taxpayer.

¶3.53 has been amended to include a reference to the scholarship exemption.

¶3.108 and 3.110 have been amended to reflect subparagraph 6(1)(a)(vi) which was added by 2012, c. 48, s. 170(1), applicable in respect of benefits received or enjoyed on or after October 31, 2011.

Update March 28, 2013

General

Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance, consolidates, replaces and cancels Interpretation Bulletin IT-75R4, Scholarships, Fellowships, Bursaries, Prizes, Research Grants and Financial Assistance, Interpretation Bulletin IT-340R, Scholarships, Fellowships, Bursaries and Research Grants - Forgivable Loans, Repayable Awards and Repayable Employment Income, and the related Special Release Interpretation Bulletin IT-340RSR.

In addition to consolidating the content of the former interpretation bulletins, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletins are described below.

Legislative and Other Changes

Throughout the Chapter, all references to spouse have been changed to spouse and common-law partner based on the 2000 same-sex partner bill.

¶3.7 (formerly included in ¶6 of IT-75R4) has been expanded to describe the meaning of the term bursary for income tax purposes.

¶3.8 (formerly included in ¶6 of IT-75R4) has been expanded to include certain skills (such as certified first aid and truck driver training courses) in the list of examples of the fields of study to which a scholarship or bursary may be considered to apply.

¶3.9 (formerly included in ¶6 of IT-75R4) has been expanded to include additional examples of the types of educational expenses that may fall within the scope of subparagraph 56(1)(n)(i) if paid or reimbursed through a scholarship or bursary program, in line with various CRA interpretations.

¶3.10 has been added to note that the taxability of a scholarship or award in an employment situation is dependent upon the particular facts and circumstances in each case. ¶3.11 to 3.20 outline the most common types of arrangements and the tax implications under each.

¶3.12 (formerly included in ¶7 of IT-75R4) has been expanded to note the exception for employer-paid or reimbursed education-related expenses that are determined to be primarily for the benefit of the employer as well as to discuss the impact of any potential commitment to repay all or a portion of an award on the taxability to the recipient.

¶3.13 (formerly included in ¶12 of IT-340R) has been added to describe the circumstances upon which a student may deduct the repayment of an award previously received in respect of an office or employment pursuant to paragraph 8(1)(n).

¶3.16 has been added to note that awards described in ¶3.14 will be considered a repayable award if the student is committed to repay all of a portion of the scholarship or bursary in the future under certain circumstances.

¶3.17 to 3.20 (formerly included in ¶9 of IT-75R4) have been expanded and substantially amended to distinguish the tax implications arising with respect to employer-provided scholarship or bursary awards to family members of employees in arm’s length or non-arm’s length situations, and in respect of elementary and secondary or post-secondary education. The income tax treatment described has been adopted as a result of the Federal Court of Appeal’s decisions in R v DiMaria and R v Bartley , 2008 FCA 390 and recent CRA interpretations on this subject matter. In addition, ¶3.18 discusses proposed new subparagraph 6(1)(a)(vi) which, if enacted, will be applicable in respect of benefits received or enjoyed on or after October 31, 2011.

¶3.21 to 3.22 (formerly included in ¶10 of IT-75R4) have been expanded to mention two court decisions concerning the taxation of training allowances.

¶3.23 to 3.24 have been added to discuss the taxation of employer-paid education and training.

¶3.25 to 3.33 (formerly included in ¶11 to 13 of IT-75R4) have been significantly expanded to discuss the characterization and taxation of amounts received by an individual on account of a fellowship. In particular ¶3.28 to 3.30 has been added to discuss the circumstances in which an award may be considered employment income of the recipient. This discussion is in line with numerous CRA interpretations on this subject matter.

¶3.36 to 3.38 have been added to outline the taxation of post-doctoral fellowships as well as to describe the two distinct circumstances in which the term fellow is used. This discussion is in line with numerous CRA interpretations on this subject matter.

¶3.39 to 3.52 (formerly included in ¶2 to 11 and ¶13 of IT-340R) discuss and distinguish repayable awards and forgivable loans for income tax purposes. ¶3.45 to 3.47 have been added to discuss the deemed interest benefit that may arise under subsection 80.4(1) in respect of certain low interest or interest free loans.

¶3.54 (formerly included in ¶18 of IT-75R4) has been revised to note the exception for certain non-cash gifts and awards received in connection with an individual’s employment.

¶3.56 to 3.57 (formerly included in ¶20 of IT-75R4) has been expanded to note the type of evidence that would indicate that a prize has been recognized by the general public for purposes of section 7700 of the Regulations, in line with various CRA interpretations on this subject matter.

¶3.59 (formerly included in ¶22 of IT-75R4) has been expanded to clarify the meaning of the term research or any similar work, based on the Federal Court of Appeal’s decision in Ghali v The Queen , 2004 FCA 60.

¶3.62 to 3.63 (formerly included in ¶23 of IT-75R4) have been expanded to discuss research related sabbatical leave arrangements.

¶3.75 (formerly included in ¶33 of IT-75R4) has been expanded to provide additional clarity with respect to the difference between travelling and temporarily residing for purposes of calculating allowable research expenses under paragraph 56(1)(o).

¶3.79 (formerly included in ¶37 of IT-75R4) has been expanded to include in (c) and (d) the assistance described in subparagraphs 56(1)(r)(iv) and (v). Subparagraph 56(1)(r)(iv) was added by 2009, c. 2, s. 13(2), applicable to the 2003 and subsequent tax years. Subparagraph 56(1)(r)(v) was added by 2009, c. 2, s. 13(2), applicable to the 2008 and subsequent tax years.

¶3.81 has been added to describe the taxation of certain assistance received by an individual in connection with their participation in an employment-related activity, in line with various CRA interpretations on the subject matter.

¶3.84 to 3.85 have been added to note that certain payments may be considered social assistance under paragraph 56(1)(u) or a scholarship or bursary under paragraph 56(1)(n) depending on its primary purpose, in line with CRA interpretations and jurisprudence.

¶3.87 (formerly ¶41 of IT-75R4) has been revised to reflect the amendment to Article XX of the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital pursuant to the coming into force of the Fifth Protocol. The amendment is effective for tax years beginning after 2008, but in respect of taxes withheld at source, for amounts paid or credited on or after February 1, 2009.

¶3.90 (formerly included in ¶43 of IT-75R4) has been revised to remove reference to the $3,000 ceiling on the scholarship exemption in subsection 56(3). This amendment was made by 2007, c. 2, s. 6(3), effective for the 2006 and subsequent tax years, to increase the $3,000 exemption to an unlimited exemption where scholarship income was received in connection with an educational program that qualified under subsection 118.6(2).

¶3.91 (formerly included in ¶43 of IT-75R4) has been revised to reflect the amendment to paragraph 56(3)(a) to effectively extend (i) to the preceding and following years. Paragraph 56(3)(a) was amended by 2007, c. 35, s. 17(1), applicable to the 2007 and subsequent tax years. ¶3.91 has also been expanded to refer to the limitation of the scholarship exemption provided by subsection 56(3.1), which was added by 2011, c. 24, s. 10(3), applicable to the 2010 and subsequent tax years.

¶3.92 has been added to reflect the amendment to paragraph 56(3)(a) to add subparagraph (ii) in respect of elementary and secondary school educational programs. Paragraph 56(3)(a) was amended by 2007, c. 35, s. 17(1), applicable to the 2007 and subsequent tax years.

¶3.93 to 3.95 have been added to describe the limitation of the scholarship exemption for part-time students pursuant to subsection 56(3.1), which was added by 2011, c. 24, s. 10(3), applicable to the 2010 and subsequent tax years.

¶3.96 to 3.97 have been added pursuant to the enactment of paragraph 56(3.1)(a), which was added by 2011, c. 24, s. 10(3), applicable to the 2010 and subsequent tax years.

¶3.98 to 3.100 (formerly included in ¶44 of IT-75R4) have been revised pursuant to the amendment to subsection 56(3), as implemented by 2007, c. 2, s. 6(3), applicable to the 2006 and subsequent tax years.

¶3.101 has been added to clarify the operation of the basic scholarship exemption further to the enactment of subsection 56(3.1) and the amendment to subsection 56(3) as a result of 2007, c. 2, s. 6(3).

¶3.102 has been added to outline CRA’s position concerning post-doctoral fellows and their ability to claim the scholarship exemption under subsection 56(3). The amendment to the definition of qualifying educational program in subsection 118.6(1), made by 2011, c. 24, s. 30(2) and applicable to the 2010 and subsequent tax years, clarified the intent of the legislation and confirmed CRA's existing position (as outlined in numerous CRA interpretations).

¶3.103 has been added to clarify whether amounts received from a registered education savings plan which are included in income under paragraph 56(1)(q) are eligible toward calculating the scholarship exemption available under subsection 56(3), in line with a CRA interpretation previously issued concerning this matter.

¶3.105 (formerly included in ¶46 of IT-75R4) has been amended to reflect the renumbering of paragraph 56(1)(aa) to 56(1)(z.1) as implemented by 2010, c. 25, s. 9(1), applicable after 2009.

¶3.107 has been added for clarification purposes and is consistent with numerous CRA interpretations relating thereto.

¶3.108 has been added to outline the reporting requirements relating to post-secondary scholarships, bursaries or free tuition to the family members of employees as a result of the Federal Court of Appeal’s decisions in R v DiMaria and R v Bartley , 2008 FCA 390 and recent CRA interpretations on this subject matter. In addition, ¶3.108 discusses the reporting requirements if proposed new subparagraph 6(1)(a)(vi) is enacted.

¶3.109 to 3.111 have been added to clarify when an award should be reported on a T4 Slip.

¶3.112 has been added for informational purposes only.

¶3.114 has been added to outline the withholding requirements for amounts that are taxable as employment income under section 5.