Describe scholarships and how they are treated for tax purposes
Bobinpreet Singh
Definition of Scholarships under ITA
Effectively, scholarships are amounts received by the taxpayer in the year for scholastic pursuits. Under ITA 56(1)(n) the amount of scholarships received that exceed the scholarship exemption for the year are included in “Other Income” for purposes of calculating Net Income for Tax Purposes. Luckily the “scholarship exemption” (as defined in ITA 56(3)) is very broad and, usually, as long as the student meets the following criteria the scholarship will not be taxable.
- Enrolled as a full-time student in a qualifying educational program at a designated educational institution, or
- Enrolled at a designated educational institution in a specified educational program that requires at least 12 hours of course work (student effort) per month.”
The definition of ‘full-time student’, ‘qualifying educational program’, ‘designated educational institution’ etc. can be found in ITA 118.6(1)
Example
Basant Motors, an auto dealership located in Surrey, provides a scholarship of $1,400 every year to two students in the region. After carefully screening the transcript of various students who applied for the scholarship, they have decided to move forward with the following students:
1) Bobinpreet Singh- A full time student, pursuing an accounting degree at Kwantlen Polytechnic University
2) Jagdeep Singh- A part time student, pursuing a diploma in Ecological Restoration at Kwantlen Polytechnic University. Due to work demands, he is only taking 1 course at this time and the duration of the course is 2 weeks.
The impact of this scholarship on their Net Income for Tax Purposes (NITP) will be as follows:
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Bobinpreet Singh |
Jagdeep Singh |
|
Bobinpreet is a qualifying student (full-time student) taking a qualifying educational program (accounting degree) at a designated educational institution (Kwantlen). Therefore his scholarship is exempt and will not be included in his NITP.
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As Jagdeep is a part-time student in a course that is less than 3 weeks long, this is not a ‘qualifying educational program’ and the scholarship is not exempt (other than the basic $500 exemption). He must include $900 as “Other Income” after taking the $500 basic scholarship exemption (ITA 56(1)(n)(ii)) |
Interactive content
Author: Bobinpreet Singh, March 2019
Interactive content
Author: Opraj Purewal, June 2019
References and Resources:
- Income Tax Act, RSC 1985, c 1 (5th Supp.), ss 56(1)(n), 118.6(1)
- “Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance” (Author: Government of Canada)
- Chartered Professional Accountants. (2022). The Chartered Professional Accountant Competency Map. Part 1: The CPA Competency Map: 6.3.2
“Describe scholarships and how they are treated for tax purposes” from Introductory Canadian Tax by Bobinpreet Singh is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
