Scholarship, Bursaries and Fellowships Taxation: Guidance From a Canadian Tax Lawyer

Scholarships and bursaries received toward elementary or secondary school educational programs are generally not taxable in Canada. Under paragraph 56(1)(n) of the Income Tax Act, all amounts over what may be referred to as the scholarship exemption are considered as income. Scholarship exemption generally includes scholarships, awards, bursaries and fellowships. It’s calculated under subsection 56(3) of the Income Tax Act and exempts the first $500, or up to the full amount described under subparagraph 56(1)(n)(i) where certain conditions are met.

What is a scholarship, bursary or fellowship?

Scholarships and bursaries are amounts paid or benefits are given to students to enable them to pursue their education. The term bursary is not defined in the Income Tax Act, but its meaning is broad enough to encompass almost any form of financial assistance paid to enable a student to pursue their education. Bursaries can include amounts paid to defray living expenses, as well as amounts that are directly related to the cost of the education. Scholarships and bursaries usually apply to education at a post-secondary level or beyond, such as at a university, college, technical institute or other educational institution. However, there are circumstances where scholarships or bursaries are awarded for education below the post-secondary school level. Scholarship or bursary awarded to a current or former employee will be considered to have been received in the course or by virtual of an office or employment. In that case, it will not qualify for the scholarship exemption.

The term fellowship is also not defined in the Income Tax Act, and it generally refers to an amount paid or benefits given for the purpose of advancing a person’s education. As such, it is similar to a scholarship or bursary, with the distinction that a fellowship is generally awarded to a graduate student by a university, charity, or similar body for doctoral studies or post-doctoral work.

Scholarship exemption requires a qualifying student

While up to 2016, a student may be entitled to claim an education tax credit and a textbook tax credit, unfortunately, these tax credits are no longer available after 2016. For 2017 and subsequent years, the scholarship exemption requires a student to be a qualifying student defined under subsection 118.6(1) of the Income Tax Act. For non-qualifying students, there is still a basic exemption of $500.

A qualifying student for a month in a tax year is, in the month,

1. Enrolled in a qualifying educational program as a full-time student at a designated educational institution, or
2. An individual who is not described in (a) and is enrolled at a designated educational institution in a specified educational program that provides that each student the program spent not less than 12 hours in the month on courses in the program.

Suppose a student is enrolled in a program other than a program at a post-secondary school level at a designated educational institution. In that case, a qualifying student must reach the age of 16 before the end of the year, and must be enrolled in a program to obtain skills for, or improve the individual’s skills in an occupation.

A designated educational institution can be a domestic or foreign university, college or other educational institution. For 2017 and subsequent year, it must be either

• a university outside Canada at which a qualifying student was enrolled in a course, of not less than three consecutive weeks duration, leading to a degree; or
• a US institution providing courses at the post-secondary school level if a qualifying student resides throughout the year in Canada near the border between Canada and the US and commutes to that institution.

Pro tax tips – Amount paid to advance one’s education may be considered as employment income

An amount paid or benefit given to a person to facilitate the advancement of the recipient’s education may be considered employment income under subsection 5(1) of the Income Tax Act where the particular facts and circumstances indicate that an employment relationship exists between the recipient and the grantor. The nature and characterization of the amount received must be determined on a case-by-case basis, and it is highly recommended that a taxpayer consult with an experienced Canadian tax lawyer in Toronto to analyze all of the relevant facts of the recipient’s situation.

FAQ

What is a qualifying student?

Under the Income Tax Act, a qualifying student for a month in a tax year is enrolled in a qualifying educational program as a full-time student at a designated educational institution or a student enrolled at a designated educational institution in a specified educational program that provides that each student the program spent not less than 12 hours in the month on courses in the program.

Are scholarships, bursaries and fellowships taxable income?

Scholarships, bursaries and fellowships are generally not considered taxable income. A student who is not a qualifying student is eligible for a deduction of $500. A qualifying student may claim a deduction up to the full amount that qualifies for scholarship exemption if certain conditions are met.