Court over­rules stingy tax­man on sum­mer school credit

Windsor Star - - FINANCIAL POST - Jamie Golombek Tax Ex­pert Fi­nan­cial Post Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Man­ag­ing Di­rec­tor, Tax & Es­tate Plan­ning with CIBC Fi­nan­cial Plan­ning & Ad­vice Group in Toronto.

While some of us may frit­ter away the lazy months of sum­mer sip­ping frosted mo­ji­tos by the lake­side dock, oth­ers are more in­dus­tri­ous, spend­ing the time in frigid, win­dow­less class­rooms, try­ing to col­lect some ex­tra cred­its.

If you, or some­one close to you, is a post-sec­ondary stu­dent who is study­ing out­side of Canada, then you may be in­ter­ested in a re­cent de­ci­sion of the Tax Court late last month in­volv­ing el­i­gi­bil­ity for the tuition tax credit for for­eign stud­ies taken dur­ing the some­what uniquely-struc­tured sum­mer se­mes­ter. Post-sec­ondary stu­dents can claim non-re­fund­able fed­eral and pro­vin­cial cred­its for the cost of tuition fees paid, with no limit, for post-sec­ondary level ed­u­ca­tion. (Tax cred­its for ed­u­ca­tion and text­book amounts were dis­con­tin­ued as of 2017.) If the stu­dent does not have suf­fi­cient in­come to use the cred­its in the year of at­ten­dance, up to $5,000 can be claimed by the stu­dent’s spouse or part­ner, or sup­port­ing par­ent or grand­par­ent. Any re­main­ing amount can be car­ried for­ward for use by the stu­dent in a fu­ture year.

The post-sec­ondary stud­ies need not be in Canada to qual­ify for the tuition credit. Un­der the In­come Tax Act, a stu­dent can claim the tuition credit for post-sec­ondary stud­ies abroad if they are “in full-time at­ten­dance at a univer­sity out­side Canada in a course lead­ing to a de­gree … ex­cept … a course of less than three con­sec­u­tive weeks du­ra­tion.” Note that there is no min­i­mum du­ra­tion re­quire­ment when the pro­gram is taken at a Cana­dian school. The re­cent tax case in­volved a Cana­dian stu­dent who tried to claim a tuition credit for her tuition fees dur­ing the sum­mer months while do­ing her MBA at the Univer­sity of Notre Dame, in In­di­ana.

Notre Dame of­fers the tra­di­tional two-year MBA pro­gram as well as an ac­cel­er­ated one-year pro­gram. The lat­ter pro­gram is in­tended for stu­dents who have al­ready com­pleted an un­der­grad­u­ate de­gree in busi­ness or have cer­tain pre­req­ui­sites.

The stu­dent en­rolled in the oneyear pro­gram from May 2014 to May 2015, when she grad­u­ated. The oneyear pro­gram is com­prised of three semesters: sum­mer, fall and spring, each con­sist­ing of ap­prox­i­mately 17 cred­its.

The sum­mer ses­sion in­cludes ten con­sec­u­tive cour­ses, each of which is of one or two weeks’ du­ra­tion or 27.5 hours per week from Mon­day to Fri­day. Nearly all of the cour­ses are com­pul­sory and are de­scribed as “Re­quired Core Cour­ses.” These cour­ses are es­sen­tially the same as those of­fered dur­ing the fall and spring semesters of the first year of the con­ven­tional two-year MBA pro­gram.

On her 2014 tax re­turn, the stu­dent claimed a tuition credit for $47,918 (all amounts con­verted to Cana­dian dol­lars), con­sist­ing of $21,577 for the sum­mer se­mes­ter and $26,341 for the fall se­mes­ter. The Canada Rev­enue Agency, fol­low­ing a strict and lit­eral in­ter­pre­ta­tion of the law, re­assessed her, deny­ing the $21,577 she paid for the sum­mer se­mes­ter. The CRA’s po­si­tion was that the tax­payer was not en­ti­tled to the tuition tax credit for her sum­mer tuition since it con­sisted of ten sep­a­rate cour­ses of one or two weeks du­ra­tion, each sep­a­rately coded with dif­fer­ent pro­fes­sors or in­struc­tors.

The ques­tion be­fore the Tax Court was whether the three week min­i­mum du­ra­tion re­quire­ment in the Tax Act is to be ap­plied to each in­di­vid­ual course within a pro­gram of stud­ies or does it re­fer to the en­tire pro­gram of study? Over the years, there have been con­flict­ing court de­ci­sions as to the mean­ing that should be given to the word “course” in the Act. The CRA’s po­si­tion was that “the word ‘course’ must be nar­rowly con­strued as re­fer­ring to a sin­gle course on a par­tic­u­lar sub­ject.” In­deed, the tax­payer ad­mit­ted that the cour­ses are all sep­a­rately coded and have dif­fer­ent in­struc­tors which might sup­port an in­ter­pre­ta­tion based on the “or­di­nary mean­ing” of the word. The tax­payer ar­gued that the sum­mer se­mes­ter is an in­te­gral part of the one-year pro­gram and that all cour­ses are com­pul­sory and at­ten­dance manda­tory. It was not sim­ply not pos­si­ble for her to pick and choose or to reg­is­ter for in­di­vid­ual cour­ses. She reg­is­tered once and paid one fee for the en­tire sum­mer se­mes­ter.

In other words, the sum­mer se­mes­ter, though com­posed of one and two week cour­ses, should be viewed as a pro­gram of cour­ses held over ten con­sec­u­tive weeks. She con­tended that had the same cour­ses been fol­lowed si­mul­ta­ne­ously dur­ing the first year of the two year pro­gram, there would be no is­sue as to her en­ti­tle­ment to the tuition tax credit. The judge felt that, based on the prior ju­rispru­dence, the word “course,” in the con­text of the tuition credit, can sup­port more than one rea­son­able mean­ing. In such a case, the judge must con­sider, in the words of the Supreme Court, “a tex­tual, con­tex­tual and pur­po­sive anal­y­sis to find a mean­ing that is har­mo­nious with the Act as a whole.”

The judge found that there was “clearly no doubt” that the tax­payer was in full-time at­ten­dance dur­ing the sum­mer se­mes­ter, tak­ing cour­ses that led to a de­gree. At­ten­dance at all ten cour­ses was manda­tory and the tax­payer was not en­ti­tled to pick and choose her cour­ses — all cour­ses were “part and par­cel of the sum­mer se­mes­ter,” for which she reg­is­tered and paid a sin­gle fee. All her sum­mer cour­ses were taken con­sec­u­tively over a ten week se­mes­ter, which sat­is­fied the min­i­mum three-week course du­ra­tion re­quire­ment.

As a re­sult, the judge ruled that the “the tuition fee paid by the (tax­payer) in re­spect of the sum­mer se­mes­ter meets the re­quire­ments of… the Act,” and al­lowed the stu­dent’s tuition credit.



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