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Principal Issues: [TaxInterpretations translation] (1) Could a taxpayer claim the tuition tax credit under section 118.5 and the education tax credit under section 118.6 in a particular situation? (2) If yes, for which taxation year?
Position: (1) Subparagraph 118.5(1)(a)(iii) provides that an amount of tuition paid for on a taxpayer’s behalf by the taxpayer’s employer that is not included in computing the taxpayer’s income shall be not eligible for the tuition tax credit. For the purposes of the education tax credit, however, the taxpayer must not have received any benefit.
(2) The tuition tax credit is available in the year for which the individual is enrolled in an educational institution pursuant to paragraph 118.5(1)(a). The education tax credit is available in the year for which the individual is enrolled, for example, in a qualifying educational program or specified educational program determined pursuant to subsection 118.6(2).
Reasons: Legislative analysis and previous positions.
XXXXXXXXXX
2011-041250
I. Landry, M. Fisc.
December 16, 2011
Dear Mr. XXXXXXXXXX ,
Subject: Tuition and Education Amounts
This is in response to your fax of June 30, 2011 in which you asked us if a taxpayer can claim the tuition tax credit under section 118.5 of the Income Tax Act (the "Act") and the education tax credit under section 118.6 of the Act in the following particular situation.
You described in your request a situation where, under a contract of employment, an employer paid the tuition fees of one of its employees for a master's program at a Canadian university. In return, that employee committed to work for the employer for a minimum period, failing which, the employee would have to reimburse part or all of the tuition fees paid by the employer. You asked us if an employee in such a situation who leaves employment one month after graduation could claim the tuition tax credit under section 118.5 and the education tax credit under section 118.6 in respect of the tuition fees so reimbursed.
All legislative references herein are to the provisions of the Act.
Our Comments
The situation that you submitted to us appears to be an actual situation for which we cannot give you a definitive opinion. However, we are able to offer the following general comments that may be helpful to you.
Tuition fees
In order for tuition fees to be eligible for the tuition tax credit, paragraph 118.5(1)(a) requires inter alia that the individual be enrolled during the year at an educational institution in Canada that is one of the following:
- a university, college or other educational institution providing courses at a post-secondary school level
- certified by the Minister of Human Resources and Skills Development to be an educational institution providing courses, other than courses designed for university credit, that furnish a person with skills for, or improve a person’s skills in, an occupation.
The tuition tax credit is based on fees paid to the institution. However, subparagraph 118.5(1)(a)(iii) provides that an amount of tuition paid on behalf of a taxpayer by the taxpayer’s employer that is not included in the computation of the taxpayer’s income does not give am entitlement to the tuition tax credit under section 118.5.
Consequently, where a taxpayer's tuition is paid by the taxpayer’s employer and those expenses are included in computing the taxpayer’s income, the taxpayer could, subject to meeting all the other conditions set out in paragraph 118.5(1)(a), claim the tuition tax credit under section 118.5 in respect of those tuition fees, whether or not the taxpayer reimburses any or all of the tuition fees to the taxpayer’s employer.
On the other hand, where a taxpayer's tuition is paid by the taxpayer’s employer and those expenses are not included in computing the taxpayer’s income, we are of the opinion that the taxpayer could, subject always to all other conditions set out in paragraph 118.5(1)(a), claim the tuition tax credit under section 118.5 but only with respect to the portion of the tuition fees that the taxpayer reimbursed to the employer.
The question of whether an amount paid to the employer is a tuition reimbursement in a particular situation, however, is a question of fact that can only be resolved after a thorough analysis of all relevant facts and documents specific to each situation.
Finally, the tuition tax credit may be claimed, where all the conditions provided for in section 118.5 are otherwise satisfied, in the year for which the individual is enrolled in an educational institution pursuant to paragraph 118.5(1)(a) and not in the year in which the fees were paid.
Education Tax Credit
With respect to the education tax credit under section 118.6, subsection 118.6(2) provides that an individual is entitled to the education tax credit if that individual is enrolled in a qualifying educational program as a full-time student at a designated educational institution or enrolled at a designated educational institution in a specified educational program that provides that each student in the program spend not less than 12 hours in the month on courses in the program. The terms "designated educational institution", "qualifying educational program" and "specified education program" are defined in subsection 118.6(1).
Subject to a few exceptions that do not appear to apply in this situation, the definition of "qualifying educational program" in subsection 118.6(1) provides, in particular, that any program for which the student receives, from a person with whom the student is not dealing at arm's length, any allowance, benefit, grant or reimbursement, is excluded from being a qualifying educational program. The same holds for a specified education program.
We are generally of the view that a taxpayer receives a benefit for the purposes of section 118.6, where the taxpayer’s tuition is paid by the taxpayer’s employer with whom the taxpayer is dealing at arm's length. We are of the view, however, that the taxpayer would not receive a benefit for the purposes of section 118.6 if the taxpayer were to reimburse all tuition fees paid by the taxpayer’s employer. In such a situation, the taxpayer could generally, subject to satisfying all the other conditions set out in section 118.6, claim the education tax credit.
Where the taxpayer reimburses only a portion of the tuition fees paid by the taxpayer’s employer, we are of the view that the taxpayer still received a benefit for the purposes of subsection 118.6(1). The taxpayer would consequently not be entitled to the education tax credit provided in section 118.6.
Finally, the education tax credit may be claimed, where all the conditions set out in section 118.6 are otherwise met, in the year for which the individual is enrolled in a qualifying educational program as a full-time student at a designated educational institution or in the year during which the individual is enrolled at a designated educational institution in a specified educational program that provides that each student in the program spend not less than 12 hours in the month on courses in the program pursuant to paragraph 118.6(2) and not in the year in which the expenses were paid.
As stated in Information Circular 70-6R5, this opinion does not constitute an advance income tax ruling and does not bind us.
Best regards,
Michel Lambert CA, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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