No Tax on Student Funds

[infocom@pro.net]

Federal government puts on hold plan to tax student assistance funds

News and Comment
by Tehaliwaskenhas
Bob Kennedy,Oneida
Copyright
Turtle Island Native Network
http://www.turtleisland.org

July 23, 2004

Good news for First Nations students. Financial support is not going to be taxed afterall . . . at least not yet. National Chief Phil Fontaine of the Assembly of First Nations announced, "I received a letter today from the Canada Customs and Revenue Agency. The Director General responsible has announced that the CRA has issued a moratorium on their attempt to tax First Nations post-secondary education assistance. The moratorium is in place until 2006, allowing us more time to ensure that the moratorium becomes permanent. "

Apparently the Canada Revenue Agency tooka legal opinion from the Department of Justice that education dollars given to First Nations students is a government policy/program and not a treaty right, so in essence, it is taxable.

Beginning in the 2005 tax year, the Canada Revenue Agency was planning on taxing all Aboriginal post secondary student support funding as income to students. Included in this income is tuition, book allowance and living allowance, scholarships, bursaries and travel dollars.

The AFN National Chief said, "The federal Crown should not penalize our students seeking higher education, nor should it be taxing our treaty and Aboriginal rights".

First Nation organizations recently initiated a protest, when they learned the agency had sent a letter to First Nations about its plans to tax students education funds next year

The Ontario Native Education Counselling Association ONECA, was leading an effort to reverse the federal government's decision.

ONECA invited everyone to sign a petition, "With post secondary education being one of the most important factors for the improved development of Native communities, taxation of support funding will only add to the already difficult financial burden of Native post secondary students. We believe that enrolment and successful completion of post secondary education will decline due to the added financial stresses."

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BACKGROUND - This is an example of what was being circulated to some First Nations and organizations, explaining the implications of what the federal government's decision would mean.


VIA FACSIMILE:
PRIVATE & CONFIDENTIAL
Name and Address

February 16, 2004

Dear Sirs

Scholarships and Bursaries Paid to First Nation Member

It has recently come to our attention that the Canada Revenue Agency (“CRA”) is now taking the view that any education payments made to status Indians are considered taxable to the recipients. The purpose of this letter is to provide our preliminary comments with respect to CRA’s views that you may wish to consider in continuing forward, and specifically in the preparation of your information returns (which must be issued by February 28, 2004). Our comments are preliminary in nature, as a final ruling has not yet been made by CRA.

BACKGROUND INFORMATION

Generally speaking, any financial assistance paid to a student to enable the student to pursue his or her education is considered a bursary by CRA. According to technical interpretations issued by CRA, a bursary includes the value of ancillary assistance such as travel, lodging, books or equipment etc.

Bursaries and scholarships are required to be included in an individual’s income under paragraph 56(1)(n) of the Income Tax Act. However, if the recipient of the bursary or scholarship is a status Indian, paragraph 81(1)(a) of the Income Tax Act, as a consequence of section 87 of the Indian Act, may provide a tax exemption if the income is considered an Indian’s personal property situated on reserve.

Given that education payments are often made to students attending educational institutions that are situated off reserve, the burden of proving that the bursary or scholarship income is situated “on reserve” becomes somewhat more challenging. Paragraph 90(1)(b) of the Indian Act provides that for purposes of section 87, personal property that was given to Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on reserve. Consequently, as long as the scholarship or bursary is received pursuant to an agreement and treaty between a Band and the Crown, specifically pursuant to an agreement to assist band members in their education, then the scholarship or bursary will be considered to be income situated on reserve and therefore non-taxable.

The outcomes of certain court decisions, namely Kakfwe v R (1999) and Mitchell v Peguis Indian Band (1990), support CRA’s position that unless the payments are pursuant to a treaty obligation, they do not qualify for deemed reserve situs under section 90 of the Indian Act and are therefore taxable.


INAC’S POSITION

It is our understanding that INAC has recently obtained a legal opinion stating that payments to fund post-secondary education were never contemplated as part of any treaty and therefore, any such payments are not made pursuant to an agreement.


WHAT DOES THIS MEAN FOR THE STUDENT RECEIVING THE PAYMENT?

CRA is aware of this opinion, and is currently evaluating the impact of his on how they should be taxing education assistance paid to or on behalf of status Indians. They have not yet formalized their views, and while we have not yet seen any final documentation or interpretations from CRA in response to INAC’s position, it appears as though all education assistance should be including the assistance as scholarship or bursary income on their individual tax returns.

In a large number of cases, the recipients may be non-taxable regardless of the requirement to include the payment in income due to various allowable income tax deduction and credits, For instance, for 2000 and later years, an individual may reduce total income for the year received from scholarships, bursaries etc by up to $3,000. In additions, tuition and education tax credits are available to individuals to reduce any taxes payable.


WHAT DOES THIS MEAN FOR THE FIRST NATION?

Regardless of whether or not the bursary payment is taxable to the individual recipient, the First Nation should be issuing T4A slips in respect of any and all education payments made to its Members during the 2003 calendar year.

The T4A slips must be distributed to recipients and a T4A information return must be filed with CRA by February 28, 2004. Failure to do so could result in penalties to the First Nation equal to $25 a day, with a minimum penalty of $100 and a maximum of $2,500.

We recognize that these filings will require additional administrative work for the First Nation in a very short period of time, however they are necessary in order to comply with taxation regulations and to avoid the occurrence of penalties.

RECOMMENDATIONS

In the short term, we recommend that the First Nation prepare and distribute 2003 T4A slips for all its education assistance recipients as well as prepare and file a T4A information return with CRA by no later than February 28, 2004. If the First Nation requires blank copies of T4A slips, they may be printed or downloaded from CRA’s website at www.ccra.gc.ca . In addition, we are available to provide assistance to the First Nation in the preparation of these filings if necessary.

Should you feel strongly that the education assistance is exempt (i.e. it is paid pursuant to a treaty) then, in preparing the T4A slips, we suggest that the recipient’s income be recorded in the footnotes to the form as “Box 28, Status Indian Exempt Income $________”, rather than directly including the amount in Box 28 on the form. However, should you wish to take this position and prepare the T4A’s in this fashion, you must be cautioned that CRA may not agree with you and may well hold that any such payments are taxable. We strongly recommend that you advise the recipients of the T4A’s of this as well. Furthermore, should CRA decide that all education assistance paid to status Indians is taxable, then this working must not be used.

We will inform you of any new or additional information as it becomes available. For the time being, please ensure that the necessary filings are completed in order to avoid potential penalties from the taxation authorities.

Should you require any additional information, please do not hesitate to contact us.

Yours very truly

KPMG LLP

/kk

[Zero Angel]

How dissapointing it is that the governement would choose the absolute worst place to tax. Students are usually the ones who need the most tax breaks because they are usually poor as it , and yet the governemt wants to tax them further?!

Education is our future, and the future of our people. You often read about things like 'socio economic situations' and studies that show uneducated parents are ones who raise poorly motivated children. Those who are hard working enough to take post secondary education are the ones who will not only lead us in the future but also support themselves, raise well-balanced children, and get us out of this welfare hellhole that many of us indians are in, the same welfare that also takes resources away from hard working people.

I hope that the white man can see this and realise just how short sighted they are being! and I hope that my native brothers and sisters could at least take a few minutes out of their lives to support this cause, even if it is just signing a petition.

Ekosi!
Zero Angel

[Tax on Students]

Education is no longer a treaty right for aboriginal students, and in 2006, they will be taxed on their tuition, bursaries and living expenses.

Lane Wade looks into the subtleties of turning treaty rights into social policy.

By: Lane Wade
November.16.2004

http://www.theeyeopener.com/storydetail ... oryid=1495

[ImmortalThunder]

Quote; "Lane Wade looks into the subtleties of turning treaty rights into social policy."

There is nothing subtle about it, its done through coercion. Peace Immortal Thunder.