Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: What are the income tax reporting obligations of a Canadian citizen while studying abroad? What is the income tax treatment of a reduction in tuition fees and living allowance stipend?
Position: Question of fact, the income tax reporting obligations depends on the residency status of the individual. The amount of the reduction in tuition fees is generally viewed as a scholarship and included in the recipients’ income. Since the primary purpose of the living allowance stipend is to support the individuals’ graduate degree, the financial assistance is to be characterized as a fellowship.
Reasons: Generally, when a student receives a reduction in tuition as a result of applying a scholarship or fellowship to their tuition fees, the amount of the reduction is generally viewed as a scholarship. Where the primary purpose of a living allowance stipend is to further the education and training of the recipient the financial assistance will be characterized as a fellowship for income tax purposes.
XXXXXXXXXX 2020-084765
C. Underhill
September 15, 2022
Dear XXXXXXXXXX:
Re: Tax implications of a scholarship and stipend provided by a university outside Canada
We are writing in response to your correspondence received on April 27, 2020, asking about, residency, the tax treatment and reporting requirements under the Income Tax Act (the Act) associated with a scholarship and living allowance stipend given to a student living abroad. We apologise for the delayed response.
We understand that your son is a full time student, studying at a university abroad. The university offered two types of financial assistance to support your son’s Doctor of Philosophy (PhD) candidature; a reduction in tuition fees, and a living allowance stipend. The university issued a Form TL11A, Tuition and Enrollment Certificate – University Outside Canada (Form TL11A) and advised your son to use the letters of offer to report the scholarship and living allowance stipend amounts on his Canadian income tax and benefit return (Canadian Return).
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 70-6R12, Advance Income Tax Rulings and Technical Interpretations (IC-70-6R12).
Residency
It is a question of fact whether an individual is a resident of Canada during a tax year. However, where an individual leaves Canada temporarily and keeps significant residential ties to Canada, they will generally be considered a factual resident of Canada.
A student, who is a factual resident of Canada may also be considered a resident of the other country (e.g., Australia) for purposes of a tax treaty that Canada has with that country. Where an individual is determined to be a dual resident, the residence article in the relevant tax treaty will generally provide tie-breaker rules to determine in which country the individual will be resident for purposes of the other provisions of the treaty. For more information, see the Convention between the Government of Canada and the Government of Australia. If under the tie-breaker rules in a treaty, an individual is determined to be resident in the other country, and not in Canada, then the individual will be considered to be a non-resident of Canada for purposes of the Canadian income tax rules. Generally, a non-resident individual is only subject to Canadian income tax on income from sources inside Canada.
A student, who is a resident of Canada, is required to report his or her worldwide income, including the taxable part (if any) of scholarships, fellowships, and foreign income from employment on their Canadian income tax return in Canadian dollars. Where income taxes are paid in the foreign jurisdiction on foreign source income, the individual may be entitled to claim a foreign tax credit on their income tax return.
Individuals who leave Canada to study abroad may refer to Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status for more information about residency. Individuals who wish to receive a written opinion regarding their residency status should complete Form NR73, Determination of Residency Status (Leaving Canada), and submit the form to the Canada Revenue Agency (CRA).
Tuition fees
Scholarships and bursaries are a form of financial assistance that are intended to help students pursue their education, usually at a post-secondary school level or beyond, such as at a university, college, technical institute or other educational institution. Scholarships, to the extent they exceed the scholarship exemption, are included in the recipient’s income under paragraph 56(1)(n) of the Act.
When a student receives a reduction in tuition as a result of applying a scholarship or fellowship to their tuition fees, the amount of the reduction is generally viewed as a scholarship unless it is connected to the employment of the student or a supporting person.
The amount of the tuition fees reported on the tuition certificate, eligible for the tuition tax credit, will be the full pre-determined tuition fee established by the educational institution for the course(s), prior to any reduction of the tuition fees as a result of the scholarship or fellowship. The tuition fees must also qualify as an eligible tuition amount according to subsection 118.5(1) of the Act.
Living allowance stipend
Fellowships are similar to scholarships and bursaries in that they are amounts paid or benefits given to individuals to enable them to advance their education. A fellowship is generally awarded to a graduate student by a university, charity, or similar body for graduate studies.
Where the primary purpose of the financial assistance is to further the education and training of the recipient in his or her individual capacity, such as studying for a graduate degree, the financial assistance will be characterized as a fellowship for income tax purposes. It would be used in computing the income of the recipient under subparagraph 56(1)(n)(i) of the Act, even though research is undertaken as a means to achieve that purpose.
The university has indicated that the primary purpose of the living allowance stipend is to support your son to obtain his graduate degree. Therefore, it is our view that the living allowance stipend, received by your son is likely a fellowship, which is included in income under paragraph 56(1)(n) of the Act, to the extent the amount exceeds the scholarship exemption.
Scholarship Exemption
The total amount of scholarship income received may be eligible for a full scholarship exemption (and therefore, not subject to income tax), if the recipient is considered a full-time qualifying student.
A “qualifying student” for a month in a tax year includes an individual who, in the month, is enrolled in a qualifying educational program as a full-time student at a designated educational institution. A “qualifying educational program” 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), at a designated educational institution. A “designated educational institution” includes universities outside Canada where the qualifying student is enrolled in a course that lasts at least three consecutive weeks and leads to a degree at the bachelor level or higher.
The information provided indicates that your son is enrolled as a full-time student, in a graduate program at a university outside Canada, where the duration of the program is 16 research quarters. Based on this information, your son would likely be considered a full-time qualifying student and therefore would be eligible for the full scholarship exemption.
More information on reporting scholarship income and the scholarship exemption is in Guide P105, Students and Income Tax available at canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.
Tuition Tax Credit
Paragraph 118.5(1)(b) of the Act allows for a tuition tax credit for eligible fees paid to an educational institution outside of Canada. Paragraph 118.5(1)(b) of the Act requires that the individual must be, during the year, a student in full-time attendance at a university outside Canada in a course leading to a degree at not lower than the bachelor or equivalent level. The student may then claim a tuition tax credit for any tuition fees paid in respect of the year to that university, provided that the fees are for a course of not less than three consecutive weeks, for each course within a program of study taken.
Where a student receives a scholarship in the form of a reduction of tuition fees, the tuition fees eligible for the tuition tax credit is the full pre-determined tuition fee established by the educational institution for the course(s), providing it otherwise qualifies as an eligible tuition amount according to subsection 118.5(1) of the Act.
It is our understanding that your son is a student in full-time attendance at a university outside Canada in a course leading to a graduate degree. Furthermore, it is our understanding the tuition fees are for courses not less than three consecutive weeks. Therefore, it’s likely that the full value of the pre-determined tuition fees determined by the university would qualify for the tuition tax credit. Although a student may receive a reduction in tuition due to a scholarship or fellowship, the university should report the full value of the pre-determined tuition fees on Form TL11A.
For information on reporting eligible tuition amounts please refer to Schedule 11, Federal Tuition, Education, and Textbook Amounts and Canada Training Credit. You can find Schedule 11 online by going to Canada.ca and typing the name of the schedule into the search toolbar.
We trust that these comments will be of assistance to you.
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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