IT INTERPRETATION BULLETIN SUBJECT: INCOME TAX ACT Scholarships, Fellowships, Bursaries, Prizes, and Research Grants NO: IT-75R3 DATE: October 4, 1993 REFERENCE: Paragraphs 56(1)(n) and (o) (also section 67; subsections 5(1), 6(3), 9(1), 56(2), 104(13) and 105(1); paragraphs 6(1)(a) and 56(1)(m), 56(1)(q) and 60(q); and subparagraphs 56(1)(a)(iv) and 115(2)(e)(ii)) of the Income Tax Act and sections 200 and 7700 of the Income Tax Regulations) Application This bulletin replaces and cancels Interpretation Bulletin IT-75R2 dated January 30, 1980 and the Special Release dated December 19, 1986. Summary This bulletin discusses the taxation of scholarships, bursaries, prizes and research grants, and the differences between these types of receipts. Depending on the nature and circumstances of the payment, the bulletin explains how each should be treated for tax purposes, including what amounts must be included in income, what amounts may be excluded and the deductibility of related expenses. CONTENTS Paragraph General Overview 1-3 Art Production Grants 4 Scholarships and Bursaries 5-9 Fellowships 10-12 Student Assistantships 13-14 Student Loans 15 Prizes 16-18 Prescribed Prizes 19 Research Grants 20-23 Allowances and Separate Grants 24-25 Reimbursements and Accountable Allowances 26-28 Research Assistants 29 Research Expenses 30-35 Amounts Received from a Trust 36 Residency Issues 37-38 Information Returns and Withholding of Tax 39 Discussion and Interpretation General Overview 1. Paragraph 56(1)(n) generally includes in income all but the first $500 of the total of all amounts received in the year as or on account of a: (a) scholarship; (b) fellowship; (c) bursary; or (d) prize for achievement in a field of endeavour ordinarily carried on by the taxpayer (other than a prescribed prize - see 19 below). Such amounts are included in income in the year received. For each taxation year, only one $500 exemption is available to be applied against all income included under paragraph 56(1)(n). Paragraph 56(1)(n) and the $500 exemption noted above do not apply to amounts received in the course of business (see 18 below) or to amounts received from an office or employment (see 17 below). Paragraph 56(1)(n) also does not apply to payments received from a registered education savings plan which are required to be included in income under paragraph 56(1)(q). Special rules apply in 1987 and later years to what may be described as "art production grants" (see 4 below). 2. Grants received in a taxation year to enable a taxpayer to carry on research or any similar work are included in income under paragraph 56(1)(o). However, a taxpayer is only required to include in income that part of such grants that exceeds the total of any allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work. There is no $500 exemption for research grants received. For more information about what is considered to be a research grant, see 20 and 21 below. Allowable research expenses are discussed in 30 to 35 below. 3. The circumstances of each case must be examined in order to determine if the assistance is an amount subject to tax as a scholarship, fellowship, bursary or prize under paragraph 56(1)(n) as described in 1 above, or if the amount is a research grant taxable under paragraph 56(1)(o) as outlined in 2 above. Factors relevant to this determination are discussed throughout the rest of this bulletin. Art Production Grants 4. Special rules apply in 1987 and later years to what may be described as "art production grants." Specifically, an exception to the flat $500 exemption mentioned in 1 above applies to a taxpayer who receives any amount that is included in income under paragraph 56(1)(n) if that amount is to be used by the taxpayer in the production of a literary, dramatic, musical or artistic work. In such cases, when calculating income under paragraph 56(1)(n), the taxpayer may deduct whichever of the following amounts is greater: (a) $500; or (b) the total amount of reasonable expenses incurred in the year to fulfil the conditions of receiving all art production grants, but not exceeding the total amount of such grants included in income for the year under paragraph 56(1)(n). (As discussed in 33 below in relation to research expenses, expenses incurred in the immediately preceding or the immediately following year may also qualify.) The amount of reasonable expenses in (b) above cannot include: (c) personal and living expenses of the taxpayer (other than expenses of travel, meals and lodging incurred in the course of fulfilling the conditions of the art grants and while absent from the taxpayer's usual place of residence for the period to which the art grants relate), (d) expenses for which the taxpayer has been reimbursed, and (e) expenses that are otherwise deductible in computing the taxpayer's income. The taxpayer may not claim the travelling expenses of his or her spouse and children or other third parties. Scholarships and Bursaries 5. 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. However, there are circumstances where scholarships or bursaries are awarded for education below the post-secondary school level. Scholarships and bursaries normally assist the student in proceeding towards a degree, diploma, or other certificate of graduation. Scholarships and bursaries may apply to any field of study, including an academic discipline (such as the arts or sciences), a professional program (such as law or medicine) or a trade or skill (such as plumbing or carpentry). Normally, a student is not expected to do specific work for the payer in exchange for a scholarship or bursary. If a scholarship or bursary program provides allowances or reimbursements to pay for specific educational costs, such as those for lodging, personal travel, tools, books or equipment, those amounts are generally included in income under paragraph 56(1)(n) (see 26 to 28 below). Paragraph 56(1)(n) can also apply to the value of benefits in kind, such as free accommodation or equipment. 6. During or immediately after a period of employment, employees and employers sometimes make agreements under which the employer agrees to pay all or part of the employee's education costs on the condition that the employee returns to work for the employer when the education is completed. In such cases, the amounts so paid are employment income to the student under subsection 5(1) pursuant to subsection 6(3), and not scholarship or bursary income within the meaning of paragraph 56(1)(n). 7. If an employer-employee relationship has not yet been established and a student receives a scholarship or bursary in return for undertaking to enter the employment of the person granting the award upon completion of the studies or training, the payments received are considered to be scholarship income under paragraph 56(1)(n). 8. As a matter of good employee relations, an employer may pay tuition fees for, or give a grant or award to, one or more school-age or university-age children of employees. Such a payment is considered to be a scholarship or bursary. It is income of the child under paragraph 56(1)(n) if the payment is made as part of a plan to help a certain number of children who are selected on the basis of their scholastic records or other achievements or qualities. This treatment is particularly likely if the selection is made by a board or committee or by persons not connected with the employer, such as schoolteachers. In other cases, a payment to assist in the education of employees' children is normally considered to be employment income of the employee (the parent) by virtue of subsection 56(2) and paragraph 6(1)(a). 9. Paragraph 56(1)(n) does not apply to training allowances paid under the National Training Act (which are included in income under paragraph 56(1)(m)). Similar training allowances given by other granting authorities, including provincial student assistance plans, are considered to be scholarships or bursaries and are subject to paragraph 56(1)(n). However, for 1988 and later years, subparagraph 56(1)(a)(iv) provides that payments made under the Unemployment Insurance Act which relate to the cost of a course or program designed to facilitate the re-entry into the labour force of a claimant under that Act are not included in an individual's income. Fellowships 10. Fellowships are similar to scholarships and bursaries in that they are amounts paid or benefits given to persons to enable them to advance their education. However, the recipient is generally a graduate student and the payer is generally a university, charity, or similar body. Fellowships are generally awarded for doctoral studies and post-doctoral work. An amount received on account of a fellowship is normally included in income as a fellowship under paragraph 56(1)(n), but it can sometimes be included as a research grant under paragraph 56(1)(o). The treatment depends upon the primary purpose for which the fellowship was granted as determined by reference to the terms and conditions attached to the award. If the primary purpose of the award is to further the education and training of the recipient in his or her individual capacity, such as studying for a doctoral degree, the award is included in income under paragraph 56(1)(n) (subject to the applicable exemptions under that paragraph), even though research is undertaken as a means to achieve that purpose. 11. On the other hand, if the primary purpose of the award is to carry out research for its own sake (for example, to further knowledge in a particular field by discovering new facts, or by reinterpreting existing knowledge), the award is considered to be a research grant and is included in income under paragraph 56(1)(o). Where the recipient's education and training is also furthered by such research, such a benefit does not invalidate the primary purpose of the grant provided the benefit can be considered to be a secondary purpose of the grant or an inevitable but incidental benefit. (See 21 below as well as the decision in The Queen v. Amyot, (1976) C.T.C. 352, 76 DTC 6217 (FCTD).) 12. In some cases an award, such as a leave fellowship, may be partly for the purpose of research and partly for the recipient's education and training. If so, it may become difficult to determine the primary purpose of the award. In such cases, the recipient may not include part of the fellowship or other award in income under paragraph 56(1)(o) and another part under paragraph 56(1)(n). In these borderline cases, the characterization of the amount may be left to the grantor to determine based on the primary purpose to the grantor. Such a determination must be reasonable in the circumstances and should be based on the general guidelines set out in 10 and 11 above. Student Assistantships 13. As a condition of receiving financial assistance, a student (usually a graduate student or an upper-year undergraduate) may agree to do some teaching, marking of examination papers, demonstration of work, or research as a member of the staff of a university. If part of the assistance is paid in the form of a fellowship and the remainder as remuneration for the performance of the duties, those two parts are treated differently for tax purposes. The amount received as a fellowship is subject to paragraph 56(1)(n), while the amount received for services rendered as an employee is considered employment income under subsection 5(1). 14. If the university has not provided for separate payments of the fellowship and employment components of the financial assistance, the whole amount so paid to the student would technically be employment income under subsection 5(1), since the terms of the agreement require the student to render service in return for it. However, if this results in a rate of pay that is considerably in excess of the going rate for similar services, the student is not required to treat the whole amount as compensation for these services. In such cases, the student only needs to include in his or her income from employment the amount that is equal to what the university would have paid for similar services rendered by a person not receiving a fellowship or similar assistance. The remainder of the financial assistance is regarded as a fellowship and is brought into income by paragraph 56(1)(n), subject to the provision for a maximum annual exemption of $500. Student Loans 15. If a student receives a genuine loan to assist in financing the student's education, the loan is not considered to be an amount received as or on account of a scholarship, fellowship, or bursary for purposes of paragraph 56(1)(n). For a genuine loan to exist, provisions must generally be made for repayment within a reasonable time. In some cases, a forgivable loan may be included in income. If an amount included in income under paragraphs 56(1)(n) or (o) is later repaid, paragraph 60(q) may allow the taxpayer to deduct the repayment. For more detailed information, see the current version of IT-340, Scholarships, Fellowships, Bursaries and Research Grants - Forgivable Loans, Repayable Awards and Repayable Employment Income. Prizes 16. Paragraph 56(1)(n) includes in income the amount of a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer (other than a prescribed prize - see 19 below). A prize can be considered to be an award to a particular person selected from a group of potential recipients and given for something that is accomplished, attained or carried out successfully. However, the type of prize contemplated in paragraph 56(1)(n) is restricted. The criteria for awarding the prize must be such that a recipient is rewarded for success in an area in which the recipient regularly applies effort. Therefore, an amount generally qualifies as a prize for purposes of paragraph 56(1)(n) if it is paid in recognition of a genuine accomplishment in a challenging area, whether it be of an academic, vocational or technical nature. A prize that is not included in paragraph 56(1)(n) is considered to be a "windfall" and is not required to be included in income unless it is also a business receipt (see 18 below) or income from employment (see 17 below). The following points indicate how paragraph 56(1)(n) applies to certain situations. (a) An award of damages to an injured party. This is not considered to be a prize. (b) Lottery winnings. Although this is a prize, the recipient is not being recognized for an accomplishment nor are the winnings likely to relate to a field of endeavour ordinarily carried on by the recipient. As a result, paragraph 56(1)(n) does not apply. See the current version of IT-213, Prizes from Lottery Schemes, Pool System Betting and Giveaway Contests. (c) An award by a professional institution to the candidate obtaining highest marks in examinations set by the institution. This is a prize subject to the provisions of paragraph 56(1)(n). 17. If an employee receives, from his or her employer, a prize or other award related to sales or other work performance, the fair market value of such an incentive is regarded as remuneration for services. Accordingly, this amount must be included in income under subsection 5(1). Similarly, the fair market value of any award not regarded as remuneration that is received by an employee in respect of, in the course of, or by virtue of the employee's office or employment is also included in income from an office or employment under paragraph 6(1)(a). For example, amounts received from an employer for exceeding sales targets, success in examinations, suggestion awards, and payments for exceptional service, are not eligible for the $500 exemption provided under paragraph 56(1)(n). For more information, see the current version of IT-316, Awards for Employees' Suggestions and Inventions. 18. If there is no employer-employee relationship between the payer and the recipient of an amount and it can be established that the amount is a business receipt, the amount is included in income under subsection 9(1). However, if the amount received is a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer and it cannot be regarded as a business receipt (and is not a prescribed prize as discussed in 19 below), then the amount is included in income under paragraph 56(1)(n). The usual $500 exemption applies, but no expenses are deductible from such an amount, unless they are eligible expenses relating to an "art production grant" as discussed in 4 above. Prescribed Prizes 19. A prize meeting all of the criteria of a "prescribed prize" is not included in computing the income of the recipient, even if the prize relates to accomplishments in the recipient's ordinary field of endeavour. Section 7700 of the Regulations defines a prescribed prize as any prize that is recognized by the general public and that is awarded in 1983 or later years for meritorious achievement in the arts, the sciences or service to the public. For example, a Nobel Prize given to a scientist or the Governor General's Literary Award given to a professional writer would qualify, as would many community service awards. Scholarships and bursaries awarded to students would not qualify. Furthermore, any amount that can reasonably be regarded as having been received as compensation for services rendered, or to be rendered, is not a prescribed prize. Research Grants 20. Grants received in a taxation year to enable a taxpayer to carry on research or any similar work are included in income under paragraph 56(1)(o). However, such research grants are only included in income to the extent that they exceed the total of the allowable expenses (see 30 to 35 below) incurred by the taxpayer in the year for the purpose of carrying on the work. A research grant is generally a sum of money given to enable the recipient to pay expenses necessary to carry out a research project. The grant may also include an element of remuneration to the recipient. It is the nature and terms of the grant, rather than the name given to it, that determine whether it is included in income under paragraph 56(1)(n) or (o). 21. For the purposes of paragraph 56(1)(o), "research" involves a critical or scientific inquiry aimed at the discovery of new facts, or the development of new interpretations or applications. It does not include research carried out for the sake of acquiring the experience or skill of conducting research, as may be the case with research carried out by undergraduate students. In order for a grant to be considered a research grant, the terms of the grant must establish that the primary purpose of the grant is to carry out research (see the comments in 11 above). The following factors may be helpful in this context: (a) If only one of the major purposes of the grant is to enable the recipient to carry out a research project, this does not in itself establish the primary purpose. The comments in 12 above should be referred to in cases where a grant has more than one major purpose. (b) The term or terms relating to the research requirements for the grant must be specific. Vague and general references, such as "including research," do not in themselves bring the grant within paragraph 56(1)(o). (c) Generally, awards to undergraduates are included in income under paragraph 56(1)(n), even though some research for essays, projects, etc., is required as part of the course requirements. (d) If the terms of the grant do not mention research, paragraph 56(1)(n) applies, even if a great deal of research is in fact done. 22. A corporation or other entity (such as a university or college) may decide to give a grant to a person outside its own organization to do specific research. Where this is done, the grant is considered to be a research grant to the recipient for purposes of paragraph 56(1)(o) whether the results of the research belong to the grantor or the recipient. If the recipient is an employee of the grantor and is retained on part salary while undertaking a specific research project, the part salary is included in the recipient's income under subsection 5(1). Any amount received as a research grant (net of allowable expenses) is included in income under paragraph 56(1)(o). Individuals (such as university faculty members) whose duties of employment include research responsibilities are not entitled to treat a portion of their regular salaries as a research grant when they engage in the type of research work ordinarily expected of them under their terms of employment. 23. A research grant is not considered to be "received" at any time for the purposes of paragraph 56(1)(o) if all of the following circumstances apply: (a) funds are made available to an individual who holds an academic appointment at a university, hospital, or similar institution, to enable the individual to carry on research or similar work; (b) the funds are paid directly to the university, hospital, or similar institution; (c) the funds are provided only to pay for the costs of the research project; and (d) the funds were not used by the individual and were not otherwise available for the personal benefit of the individual. In some cases, part of the research grant may be paid to a researcher or may otherwise be made available for the researcher's personal benefit, but the remainder of the funds meet the criteria listed above. If so, only that part of the grant actually paid to, or otherwise available for the researcher's personal benefit, will be considered to be "received" by the researcher as a research grant under paragraph 56(1)(o). Allowances and Separate Grants 24. In this bulletin, "allowance" refers to any periodic or other type of payment that a student or researcher receives for expenses without having to account for its use. All amounts received as a scholarship, fellowship, bursary, prize for achievement or research grant must be included in computing income. These amounts must be included whether or not they are received as a fixed sum, as an allowance, or as a fixed sum plus additional allowances. The comments in 10, 11 and 21 above, which deal with whether or not a grant should be taxed under paragraph 56(1)(n) or (o), also apply to allowances. 25. Each allowance and grant should be considered separately when determining if it is subject to paragraph 56(1)(n) or (o). Therefore, it is possible for a graduate student to have an award which is taxable under paragraph 56(1)(n) and a subsidiary allowance or separate grant (either from the same, or a different grantor) which is taxable under paragraph 56(1)(o). Reimbursements and Accountable Advances 26. The terms "reimbursement" and "accountable advance" are used in this bulletin with the following meanings. (a) "Reimbursement" refers to payments to students or researchers to repay them for amounts they spent in continuing their education or in carrying out research work. (b) "Accountable advance" refers to amounts given to students or researchers for expenses to be incurred by them in continuing their education or to carry out research work. These amounts must be accounted for by providing vouchers. Any amount not expended for its intended purpose must be returned. 27. Reimbursements or accountable advances to cover expenses incurred by students in furthering their education are subject to paragraph 56(1)(n). For example, students who receive scholarships to enable them to attend universities located at some distance from their homes may also receive reimbursements or accountable advances to cover travelling expenses between their homes and the university. This type of reimbursement or accountable advance is included in computing income under paragraph 56(1)(n), subject to applicable exemptions under that paragraph. 28. A reimbursement or accountable advance to pay for the reasonable costs of a research project is only included in computing income to the extent that the expenses reimbursed represent personal or living expenses of the recipient (except allowable travelling expenses as outlined in 30 to 35 below). Expenses for which the recipient has received a reimbursement or accountable advance and which are not included in computing income are not deductible as allowable expenses under paragraph 56(1)(o). Research Assistants 29. In some cases, a researcher may hire one or more assistants whose relationship to the researcher may be that of: (a) co-researcher to the researcher; (b) employee to an employer; or (c) student to a professor. If the relationship is that of co-researcher to the researcher, payments made out of a research grant to the co-researcher are regarded as a research grant for purposes of paragraph 56(1)(o). If the relationship is that of employee to an employer, payments made to the assistant are regarded as employment income taxable under subsection 5(1). In cases where the relationship of the assistant to the researcher is that of student to a professor, the student receiving payment for his or her share in the project may have undertaken the work not primarily for financial gain but because participation in it will assist the student in qualifying for a degree or other scholastic recognition in the field in which the research is being carried on. In this situation, the direction given by the researcher is usually of a general or consultative nature, and the student-assistant will have more freedom in carrying on his or her part of the project than an assistant would under an employee-employer relationship. If this is the case, payments made out of a research grant to the assistant are regarded as a research grant. On the other hand, duties and tasks may be required that do not have to be performed by a student participating in the research to further his or her own education. Certain types of clerical or laboratory work, for example, may require some degree of skill, but if that work is performed by the student assistant under the specific direction of a researcher or co-researcher and it is done primarily for financial gain, an employee-employer relationship is considered to exist. If so, payments received by the student assistant out of the grant are employment income included under subsection 5(1). Research Expenses 30. Research grants only need to be included in income to the extent that the grants exceed allowable expenses incurred by the taxpayer in the year for the purpose of carrying on the work. The research expenses allowable under paragraph 56(1)(o) may not exceed the total research grants taxable in the year under that paragraph. In other words, research expenses cannot be applied to reduce other types of income such as scholarships, employment income or business income. By virtue of section 67, research expenses are also not deductible to the extent that they exceed an amount that is reasonable in the circumstances. 31. In this context, allowable research expenses do not include: (a) personal and living expenses of the taxpayer (other than travelling expenses incurred by the taxpayer while away from home in the course of carrying on the work, including amounts spent for meals and lodging - see 32 below); (b) expenses for which the taxpayer has been reimbursed, (except to the extent that these reimbursements are included in income as part of a grant received); and (c) expenses that are otherwise deductible in computing the taxpayer's income. 32. Travelling expenses (including all amounts spent for transportation and lodging while travelling) that the taxpayer incurs while away from home in the course of carrying on the work are allowable research expenses. If, while engaged in the research work, a taxpayer establishes a temporary base in a place other than his or her home, the taxpayer may be considered to be temporarily residing in that place (sojourning) rather than travelling. This is a question of fact in each case which depends on factors such as the type of accommodation, the length of stay, the existence of a permanent home elsewhere and the location of the taxpayer's family. If a taxpayer is temporarily residing in a place, amounts paid for meals and lodging in that place are considered to be personal and living expenses rather than travelling expenses. As such, they are not allowable research expenses. A person in receipt of a research grant is entitled to claim his or her own expenses for: (a) travel between his or her home and the place where he or she temporarily resides while engaged in the research work; (b) travel from one temporary location to another; and (c) travel on field trips connected with the work. The taxpayer may not claim the travelling expenses of his or her spouse and children or other third parties (see Subbarao v. MNR, (1986) 2 C.T.C. 2089, 86 DTC 1554 (TCC)). 33. Paragraph 56(1)(o) provides that, in order for research expenses to be deductible from the grant, the research expenses must be incurred in the same year in which the research grant is received. In some cases, research expenses may be incurred in the year immediately before or immediately after the year in which the grant is received. While those expenses cannot be deducted in the year in which they are incurred, they are considered to be deductible in the year in which the grant is received. However, for any expenses incurred in the year before the grant is received, those expenses incurred before the taxpayer is notified that the grant will be paid are not deductible from that grant. Research expenses incurred more than one year before, or more than one year after, the year in which the grant is received are not deductible from that grant. 34. The term "expenses" as used in paragraph 56(1)(o) is interpreted to include not only current expenses but also expenditures of a capital nature. 35. If research expenses are paid by the university, hospital or similar institution on behalf of a researcher in the circumstances outlined in 23 above, those expenses are not regarded as having been incurred by the researcher. Amounts Received from a Trust 36. When a trust (including a trust which is a registered charity) pays a scholarship, fellowship, bursary, prize or research grant, that amount must be included in the income of the recipient under paragraph 56(1)(n) or (o), rather than as income from a trust under subsection 104(13) or 105(1). The recipient may therefore claim the $500 exemption under paragraph 56(1)(n) or the expenses allowed under paragraph 56(1)(o), as the case may be. Individuals from Other Countries Who Become Resident of Canada 37. Individuals from other countries who become residents or deemed residents of Canada for the purposes of their education or training are subject to tax in Canada on their world income from that time. This income would include both Canadian and foreign source awards they receive. However, awards received from foreign sources by such individuals resident in Canada may be exempt from income tax in Canada by virtue of an income tax agreement between Canada and the country in which the individual previously resided. For example, Article XX of the Canada-United States Income Tax Convention (1980) provides an exemption from tax in Canada for amounts that American students receive from within the United States for their maintenance or studies in Canada. Non-Residents of Canada 38. Subsection 115(2) provides special rules pertaining to certain non-resident individuals. The main categories affected are: (a) students; (b) teachers; (c) persons carrying on research; and (d) individuals who previously were Canadian residents; who are in receipt of remuneration from an office or employment or Canadian source scholarships, fellowships, bursaries, prizes, and research grants. In accordance with subparagraph 115(2)(e)(ii), a non-resident individual subject to the rules of subsection 115(2) is taxable on all amounts received from a source in Canada that would be required by paragraphs 56(1)(n) and (o) to be included in computing income for the year if the individual were resident in Canada throughout the year. Information Returns and Withholding of Tax 39. Tax does not have to be withheld at source from amounts that are included in the recipient's income under either of paragraphs 56(1)(n) or (o). However, under subsection 200(2) of the Regulations, every payer of a research grant, scholarship, fellowship, bursary or prize (other than a prescribed prize) must report the amount on an information return (T4A slip). If you have any comments regarding the matters discussed in this bulletin, please send them to: Director, Technical Publications Division Legislative and Intergovernmental Affairs Branch Revenue Canada - Customs, Excise and Taxation 875 Heron Road Ottawa, Ontario K1A 0L8 Explanation of Changes for Interpretation Bulletin IT-75R3: Scholarships, Fellowships, Bursaries, and Research Grants Introduction The purpose of the Explanation of Changes is to give the reasons for the revisions to an interpretation bulletin. It outlines revisions that we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations. Overview This bulletin updates existing IT-75R2 and its December 19, 1986 Special Release, which explains how scholarships, bursaries, prizes and research grants are taxed, how certain related expenses are deducted, and the differences between the types of receipts. We revised the bulletin to incorporate changes to paragraph 56(1)(n), which deals with expenses to produce artwork, which were enacted in S.C. 1991, c. 49 (formerly Bill C-18). The bulletin also discusses tax-exempt prescribed prizes, which were introduced in S.C. 1987, c. 46 (formerly Bill C-64). We have made general revisions to improve the readability of the bulletin and to reflect recent departmental opinions on this subject. This bulletin is not affected by the amendments contained in S.C. 1993, c. 24 (formerly Bill C-92), which received Royal Assent on June 10, 1993, or by the draft Amendments to the Income Tax Act and Regulations, issued by the Minister of Finance on December 21, 1992. Legislative and other changes New #s 1, 2 and 3 provide an overview and introduction to the bulletin and are largely adapted from former #s 1 and 2. New # 4 explains the amendment to paragraph 56(1)(n) in Bill C-18 to allow expenses to be claimed against grant income received by artists in the form of what are here termed "art production grants." The long standing administrative position in # 33 of the revised bulletin, which allows the deduction of research expenses incurred in the immediately preceding or the immediately following taxation year, has been extended to this substantially similar context. Similarly, the bulletin advises that travelling expenses of the artist's family or other third parties are not allowable, which again extends an existing position (see new # 32) on research expenses to this similar context. New #s 5 to 9 simply clarify the commentary in former #s 3 to 7 on scholarships and bursaries. # 5 now uses more appropriate examples of educational fields, and advises that specific allowances and benefits in kind may be income under paragraph 56(1)(n). # 9 reflects the addition of subparagraph 56(1)(a)(iv) by Bill C-18, which excludes from income certain training costs provided under the Unemployment Insurance Act. New #s 10 to 12 are largely unchanged from former #s 8 to 10 on the subject of fellowships. In # 11, we have rephrased the interpretation of the word "research", and added a citation for the Amyot decision to support the Department's position on research in relation to the recipient's education and training. New #s 13 and 14 on graduate student assistantships are substantially unchanged from former #s 11 and 12. In new # 15, we have extended the comments in former # 13 on student loans to indicate what is meant by a bona fide (or genuine) loan, and added a brief comment on forgivable loans along with a cross reference to the current version of IT-340. New #s 16 to 18 on prizes are largely unaltered from former #s 14 to 16 (we revised #s 15 and 16 in the 1986 Special Release to IT-75R2), but have changed their order, and deleted some obsolete references. New # 19 reflects the amendment to paragraph 56(1)(n), contained in Bill C-64, to exclude from the application of paragraph 56(1)(n), certain prizes prescribed in section 7700 of the Regulations, which was added by P.C. 1989-1923, SOR/89-473. New #s 20 to 23 carry forward the comments on research grants in former #s 17 to 20. We have rephrased the description of the word "research" in # 21 to conform more closely with its current ordinary meaning. New #s 24 to 29 are virtually unchanged from the comments in former #s 21 to 26 on allowances and separate grants, reimbursements and accountable advances, and research assistants. New #s 30 to 35 correspond closely to the comments on research expenses in former #s 27 to 32. # 32 now contains further details on the meaning of "temporarily residing", and cites the Subbarao case to support the denial of travelling expenses of the taxpayer's family or other third parties. New #s 36 to 38 are essentially unchanged from former #s 33 to 35 on certain trust and non-resident aspects. We have added a new # 39 to advise that there is no requirement for withholding tax at source on the amounts outlined in the bulletin, but that there is a T4A reporting requirement.
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