Principal Issues: Are status Indian students required to include post-secondary education assistance in income?
Position: Question of fact, but most likely yes.
Reasons: INAC has advised that PSE assistance is provided as a matter of social policy and not as a treaty right. In the absence of a treaty right, the amount would be exempt if sufficient connecting factors exist to situate the amount on a reserve. The requirement to issue a T4A slip reporting the payment of PSE assistance has been delayed until 2006 to ensure sufficient time is provided to allow First Nations to set up reporting systems.
Signed on June 7, 2005
XXXXXXXXXX
Dear XXXXXXXXXX:
I write in reply to your letter addressed to Mr. Ian E. Bennett, Deputy Minister of the Department of Finance, regarding the possible taxation of post-secondary education assistance received by First Nations students. Mr. Bennett forwarded a copy of your letter to me on April 22, 2005.
A tax exemption exists for a Status Indian's personal property that is situated on a reserve. Since the courts have determined that income is personal property, a Status Indian student may not have to include post-secondary education assistance in income if the amount is situated on a reserve. One way for post-secondary education assistance to be situated on a reserve is if there are sufficient factors connecting it to a reserve. Alternatively, the Indian Act provides that personal property given to Indians or to a band under a treaty between a band and Her Majesty is always deemed to be situated on a reserve.
In the 1978 court case Greyeyes v. the Queen, the Government accepted as one of the facts prior to trial that education assistance had been received under a treaty. Based on this understanding, the Canada Revenue Agency (CRA) had for many years not required that post-secondary education assistance paid to Status Indians be reported on T4A slips. However, in 2003, the Department of Indian Affairs and Northern Development informed the CRA that post-secondary education assistance is provided as a matter of social policy and not as a general treaty right. It has further clarified this position to indicate that such assistance can only be viewed as a treaty right if the treaty specifically provides for the right to education at the post-secondary level.
The foregoing position has an effect on how the CRA, as administrator of the Income Tax Act, must tax such amounts. However, the requirement to report post-secondary assistance paid to Status Indians on a T4A slip has been delayed and will first apply to amounts paid in 2006. This delay will allow the federal government to work with the First Nations to ensure that they are informed as to the relevant data to retain and that they are aware of the manner to report it on the T4A slips. During this time, the CRA will review whether there are appropriate connecting factors that may exist in certain situations for the post-secondary education assistance to be sufficiently connected to a reserve for the amounts to be tax-exempt when received by Status Indians.
The CRA recognizes that the education of First Nations students is a high priority for the First Nations and the Government of Canada. The CRA will ensure that post-secondary education assistance of a Status Indian that is connected to a reserve will continue to be tax-exempt. If there is no connection to a reserve, the CRA will ensure that students have access to all of the information about their credit entitlements in order to offset or reduce any tax liability.
As a general rule, Canadians who receive post-secondary education assistance are required to include the assistance in the calculation of their income, subject to an exemption of up to $3,000. The Income Tax Act provides post-secondary students with a non-refundable tuition tax credit based on their tuition fees paid for the year. The Act also allows them to claim a non-refundable education tax credit based on an amount of $400 for each month that the student is enrolled as a full-time student in a qualifying educational program with a designated educational institution. As a result of the exemption and the non-refundable tax credits, including the basic personal amount, most Canadian students do not have to pay income tax on post-secondary education assistance. The proposed reporting requirements should not create any barriers to First Nations students completing their education.
I appreciate the opportunity to respond to your concerns on this important issue.
Yours sincerely,
Ed Gauthier Deputy Assistant Commissioner Tax and Regulatory Affairs Policy and Planning Branch c.c.: Minister's Office Political Assistant
Robin Maley
946-3558
2005-012850
May 20, 2005