Principal Issues: [TaxInterpretations translation] (1) What is the tax treatment of bursaries paid to Quebec students under the Program québécois de prêts et bourses [the Quebec loans and bursaries program]?
(2) Can a student be considered to have received a bursary despite the fact that the scholarship amount is never handed over to the student?
Position: (1) In this case, a student who receives a bursary under the PQPB must include it in income under paragraph 56(1)(n) of the Income Tax Act, subject to the exemption in subsection 56(3).
(2) Yes.
Reasons: The Income Tax Act; Jurisprudence.
May 9, 2006
Quebec Tax Services Office Headquarters Ms. Nicole Goulet François Bordeleau Client Services 952-1506
2006-017637
Request for technical interpretation - Scholarships paid to students in Quebec under the Quebec government's loans and bursaries program
This letter is in response to your letter dated March 15, 2006, sent to us by fax, in which you requested a technical interpretation regarding the Quebec Loans and Grants Program. The facts that are the subject of our technical interpretation are set out below.
RELEVANT FACTS
The facts regarding your request for a technical interpretation can be summarized as follows:
- The Ministère de l'Éducation, du Loisir et du Sport [Ministry of Education, Leisure and Sport] ("MELS") administers the Program québécois de prêts et bourses [Quebec Loans and Bursuries Program] ("PQPB");
- That program is intended for students who wish to pursue full-time secondary, vocational or post-secondary studies in a college, university or other educational institution recognized by the MELS;
- A student is eligible for the PQPB if the total expenses incurred to pursue the student’s studies exceed the amount of the student’s financial resources, including contributions from the student’s spouse and/or parents;
- The amount of a loan that is granted to a student is determined with regard to the type of educational institution attended (high school, college or university) and with regard to the program being followed;
- If a student's financial needs are greater than the amount of the loan granted, MELS will award a bursary to the student for this "shortfall";
- A year of study, for which financial aid is paid, begins in September and ends in August of the following year;
- A study year is divided into study periods consisting of September to December, January to April and May to August;
- Loans are disbursed at the beginning of each study period by means of a loan authorization paid directly into the student's bank account;
- In the case of a student who qualifies for a bursary under the PQPB, the government will pay the amount directly to the financial institution in order to reduce or cancel the loan amount;
- The bursary is paid out at the end of the school year after a verification of the student's income by Revenu Québec;
QUESTION
You are seeking a technical interpretation on the following questions:
(1) What is the tax treatment of bursaries paid to Quebec students under the PQPB?
(2) Can a student be considered to have received a bursary despite the fact that the amount of the bursary is never personally delivered to him or her?
ANALYSIS
(1) Tax treatment of the bursary
Interpretation Bulletin IT-75R4 defines a scholarship and bursary as follows:
Scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their 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. […]Scholarships and bursaries normally assist the student in proceeding towards a degree, diploma, or other certificate of graduation. […] Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary.1
In Simser v. Canada2 , the Federal Court of Appeal considered the meaning of the term "bursary". In doing so, it noted the following definitions contained in the Canadian Oxford Paperback Dictionary and Le Grand Robert, dictionnaire de langue française, respectively:
- A grant, especially one awarded to a student; and
- Pension accordée à un élève, un étudiant, pour subvenir à ses besoins pendant le temps de ses études.
According to the Federal Court of Appeal, those definitions of the word "bursary" show that bursaries are grants given to students who need financial assistance to continue their education. As the Court writes:
The wording of paragraph 56(1)(n) leads me to the conclusion that it must receive a liberal interpretation. The word "bourse d'études", used in the French version of paragraph 56(1)(n), makes it clear that a "bourse" is linked to the status of student. Further, the dictionary definitions which the Judge cited and those that I have added to his list evoke the notion of financial assistance for needy students.
We are therefore of the view that students who receive MELS bursaries under the PQPB must include the amount of the bursaries that is in excess of the bursary exemption provided for in subsection 56(3). We refer you to Interpretation 2005-0114411, which is along the same lines.
Subsection 56(3) provides a basic exemption of $500, which may be increased by an additional $2,500 if the bursary is received by a taxpayer in connection with enrolment in an educational program for which an amount is deductible as an education tax credit in computing the taxpayer's tax payable for the year in which the bursary was received. In other words, the amount of the bursary to be included in a student's income pursuant to paragraph 56(1)(n) will be reduced by one of the amounts provided for in subsection 56(3).
Where a student receives a bursary in a taxation year when the student is no longer a student (for example, a student completes the student’s studies in December 2005 and receives a bursary in April 2006), the student will only be entitled to the basic $500 exemption. However, if the student receives a bursary for a taxation year in which the education tax credit can be claimed, the student will be entitled to the increased exemption of $3,000. We refer you to Technical Interpretation 2003-0036737 which confirms this approach.
On another note, the information on the MELS website seems to indicate that when the bursary is paid to the student, the loan is "converted" into a bursary so that the loan is repaid in whole or in part. We are of the view that such a description of the transactions casts doubt on the true nature of the bursaries paid to students under the PQPB. In our view, the payment of a bursary on behalf of a student does not result in the "conversion" of the loan previously granted into a bursary. In our view, those are two separate transactions where the payment of the bursary is subject to the rules in paragraph 56(1)(n). The fact that a bursary is paid to a student under the PQPB in addition to any loan made to the student validates this approach.
(2) Need to have "received" a bursary for the purposes of paragraph 56(1)(n)
Paragraph 56(1)(n) requires a taxpayer to include in income for the year any bursary received by the taxpayer. In this case, can we conclude that students in Quebec "receive" a bursary even though they are only an intermediary between MELS and the financial institution and have no control over the bursary (the amount of the bursary being directly applied to the reduction of the loan granted to the student)?
We believe so. In Jones v. Canada3 , the taxpayer was the recipient of a scholarship. The amount of the scholarship had not been paid directly to the taxpayer but had been applied against the taxpayer's tuition fees. The Court - in response to the taxpayer's contention that he had never received the scholarship amount under paragraph 56(1)(n) - concluded that the amount had indeed been received by the taxpayer. In support of that decision, the Court cited Morin v. Canada4:
Having studied, read and re-read the references given by counsel for the plaintiff, we find that that there are no grounds here for applying the ejusdem generis rule, except to say that the expressions “to benefit from, to gain advantage from or to profit from” are included under the generic term “to receive”.
Similarly, the Court highlighted the following passage from Lucien Gingras v. M.N.R.5:
The expression "touché" (received) does not necessarily mean that the full amount of the salary must be physically received by the payee or be deposited in full in his bank account.
According to interpretation of section 5, it is sufficient to say that the amount of the salary was paid by the employer, either to the employee himself or to his benefit, or that it was remitted to a third party under a federal or provincial law.
In this case, we are of the view that Quebec students receive a bursary from MELS even if the amount is directly applied against the loans they receive.
We hope that the above comments are of assistance.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnerships Section
Income Tax Rulings Directorate
ENDNOTES
1 IT-75R4, para. 6
2 [2004] F.C.A.. no. 2075
3 [2002] T.C.C. No. 338
4 75 D.T.C. 5061 (F.C., Trial Division)
5 Not published.