OdehaAre Scholarships Taxable in Canada? Understanding Scholarship Taxation Rules: As the costs of post-secondary education rise, scholarships play an increasingly important role in helping students afford their studies. But are scholarships considered taxable income in Canada? Let’s explore the nuances of scholarship taxation rules.
The Basics of Scholarship Taxation
In general, scholarships, bursaries and other education amounts received from eligible programs are non-taxable in Canada. However, there are some important exceptions:
– Scholarships in excess of tuition, education and supplies costs in a calendar year are considered taxable income.
– Scholarships for part-time programs where the student is receiving training on employment-related skills are taxable unless from an eligible educational program.
– Scholarships from foreign scholarship programs may be fully or partially taxable depending on residency rules and tax agreements.
It’s wise for scholarship recipients to understand which amounts are non-taxable vs taxable to avoid surprises at tax time.
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Eligible Educational Programs
For a scholarship to be non-taxable, it must be received as a result of enrollment in an “eligible educational program.” This includes programs at a:
– Canadian or foreign university
– College or other eligible post-secondary institution
– Secondary school in Canada
– Specified educational institution (ex. music or dance school)
Most accredited undergraduate, graduate and professional degree programs qualify. Be sure to confirm eligibility for any part-time or specialized programs.
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Scholarship Cost Threshold
Scholarship amounts up to tuition fees, compulsory student fees, and costs for books, supplies and equipment required for the program are non-taxable.
These costs are considered on a program-year basis and include fees paid using a scholarship as well as out-of-pocket. Only amounts exceeding the costs for an entire calendar year are taxable income.
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Reporting Scholarship Income
Both taxable and non-taxable scholarship amounts must be reported on tax returns. Non-taxable amounts are simply not included as income.
Taxable amounts are included as “other income” and appropriate taxes withheld based on the taxpayer’s marginal tax rate. T4A slips are issued by post-secondary institutions for any taxable scholarship income.
While receiving scholarships benefits students financially, understanding the taxation implications is equally important for budgeting, planning and tax compliance. Properly navigating rules helps maximize non-taxable support for studies.
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