CRA tax case shines a timely light on post-secondary tuition credit

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College students are making ready to go again to highschool so it’s time to stroll via the fundamentals of the federal tuition tax credit score for postsecondary training and take a look at an uncommon latest tax case involving the schooling carryforward guidelines.

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The tutoring tax credit score for post-secondary training is a federal non-refundable credit score for the price of tuition charges (tax credit for training and textbook quantities have been discontinued as of 2017). For the reason that credit score is non-refundable, some college students might discover they don’t want to assert all of it to scale back their earnings tax to zero since their taxes owing on minimal earnings from part-time or summer time employment could also be totally offset by the improved primary federal tax credit score ($14,398 for 2022).

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College students who don’t use their full tuition credit score have a few choices. They’ll both switch the unused quantities to a partner or associate or (grand)guardian, or carry ahead unclaimed quantities (together with any training and textbook quantities previous to 2017) indefinitely. The person claiming the transferred credit score, corresponding to a guardian (which features a pure guardian, step-parent, adoptive guardian or perhaps a partner’s or associate’s guardian), needn’t be the one who paid the schooling.

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The utmost quantity that may be transferred is $5,000 much less the quantity of tuition for the present yr that’s claimed on the coed’s return. As well as, quantities carried ahead from earlier years must be used by the student before the current year’s amounts, and any carried-forward quantities that aren’t fully utilized by the coed within the present yr can solely be claimed by the coed in a subsequent yr and can’t be transferred.

The case

A Federal Courtroom of Attraction determination in June handled the schooling carryforward guidelines, albeit in a really distinctive set of circumstances. A former scholar was interesting a 2020 determination of the Tax Courtroom that denied him the schooling carryforward credit score.

The individual is now a tax lawyer who lives in Calgary, having immigrated to Canada from america in 2012. From 2002 to 2011, he attended college on a full-time foundation within the U.S., beginning on the College of Pittsburgh, adopted by legislation faculty at Duquesne College, after which incomes his grasp’s diploma in tax on the College of Florida.

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He paid tuition totalling a little bit greater than US$159,000 throughout this era, which, utilizing historic Canada-U.S. alternate charges, amounted to $179,000 of tuition in Canadian {dollars}. The schools offered him with signed copies of Canada Income Company Form TL11A Tuition and Enrolment Certificate – University Outside Canada, which is used to certify eligibility for claiming tuition charges of a scholar attending a college outdoors Canada.

After immigrating to Canada, he filed Canadian earnings tax returns for the 2002 to 2011 tax years. All these tax returns have been filed after he turned a resident of Canada despite the fact that he was neither a resident of Canada nor a deemed resident of Canada from 2002 via 2011. These returns have been assessed (and reassessed) by the CRA on the idea that he had no tax payable in Canada.

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When submitting his 2012 Canadian tax return, which was the primary yr he was thought-about a tax resident of Canada, he claimed his unused tuition tax credit carried ahead primarily based on the schooling paid to the U.S. universities from 2002 to 2011 when he was not a Canadian resident and had no supply of earnings in Canada.

The CRA reassessed him for his 2012 taxation yr to disallow the claimed tuition tax credit and to scale back his tuition tax credit score carryforward quantity to zero. He appealed this reassessment to the Tax Courtroom of Canada, which heard the case in 2020.

The problem earlier than the court docket was whether or not he ought to be entitled to a tuition tax credit score in every of the tax years from 2002 via 2011 due to tuition paid to universities within the U.S. in these years. These credit, he believed, resulted in him having an unused tuition tax credit score steadiness on the finish of 2011 that he may then deduct in computing his tax payable in 2012 and subsequent tax years as soon as he turned a resident in Canada.

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The query got here down as to if the tax guidelines governing tuition and tuition carryforward credit apply to all non-residents (as he argued) or solely to these non-residents who’re thought-about taxpayers within the years for which tuition is paid and for whom that yr is a taxation yr (the CRA’s place).

The CRA argued that when a non-resident particular person will not be required to file an earnings tax return for a selected yr, as a result of that particular person was not employed in Canada, didn’t stick with it enterprise in Canada and didn’t eliminate taxable Canadian property, that particular person is just not thought-about a taxpayer for functions of the Revenue Tax Act, and, due to this fact, that yr will not be a taxation yr of that particular person.

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Consequently, the person is neither required, nor even in a position, to compute their tax payable the identical method a Canadian resident taxpayer would. Consequently, even when a non-resident pays tuition to an eligible training establishment for that yr, that particular person has no tuition tax credit score for that yr and no unused tuition tax credit on the finish of that yr to hold ahead.

After an in depth and prolonged authorized evaluation, the Tax Courtroom choose agreed, concluding that as a result of the schooling credit score guidelines require a person to be a scholar throughout a taxation yr to assert a tuition credit score, a scholar will not be entitled to a tuition tax credit score in any yr that’s not a taxation yr.

Put one other method, as a result of the individual in query right here was not thought-about to be a taxpayer in any of the years from 2002 to 2011, none of these years was a taxation yr for him. Accordingly, he had no tuition tax credit in any of these years, and had nothing to hold ahead to deduct towards his tax payable in 2012.

In June 2022, a three-judge panel of the Federal Courtroom of Attraction, in a brief, three-page determination delivered from the bench, dismissed the previous scholar’s enchantment, discovering the Tax Courtroom’s 2020 determination to be right.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. [email protected]

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