Principal Issues: What is CRA’s interpretation of paragraph 118.5(1)(b) of the Income Tax Act, in light of the Tax Court of Canada’s decision in Fortnum v. The Queen, 2018 TCC 126, heard under the informal procedure?
Position: CRA’s interpretation of subparagraph 118.5(1)(b)(i), as explained in paragraph 2.10 of Income Tax Folio S1-F2-C2, Tuition Tax Credit, has generally not changed as a result of the Tax Court of Canada's decision in Fortnum. Notwithstanding this, the CRA will consider a course of less than 3 consecutive weeks duration to satisfy the requirement in subparagraph 118.5(1)(b)(i) in situations factually similar to Fortnum.
Reasons: This case was heard by the Tax Court of Canada under the Informal Procedure. Section 18.28 of the Tax Court of Canada Act provides that decisions rendered as a result of this procedure do not have precedential value.
July 3, 2019
Ms. Andrea Ryer HEADQUARTERS
Senior Appeals Officer Income Tax Rulings Directorate
Tax and Charities Appeals Directorate Renee Sigouin
(613) 670-8903
2019-079152
Tuition tax credit
This memorandum has been prepared in response to your email of January 8, 2019, in which you have requested our interpretation of paragraph 118.5(1)(b) of the Income Tax Act, in light of the Tax Court of Canada’s decision in Fortnum v. The Queen, 2018 TCC 126 (Fortnum), heard under the informal procedure.
Background
At issue in this proceeding was whether the taxpayer was entitled to claim the tuition tax credit for tuition fees paid to a University outside Canada in respect of the summer semester of a one-year academic program, and in particular, whether the fees were “in respect of a course of less than three consecutive weeks duration” within the meaning of subparagraph 118.5(1)(b)(i) of the Act.
The relevant facts can be summarized as follows: The taxpayer was enrolled in a one-year accelerated MBA program at the University of Notre Dame in Indiana, U.S.A. The program had three semesters; summer, fall and spring. The ten week summer semester consisted of ten compulsory courses and one elective course. Attendance in all courses was mandatory. The courses were each one or two weeks in length and were taken consecutively over the semester. Each course was assigned a different course number and was taught by a different professor. The taxpayer registered once and paid a single fee for the entire semester. Courses offered in the one-year accelerated MBA program were essentially the same as those offered during the fall and spring semesters of the first year of the conventional two-year MBA program. However, courses in the two-year program were run simultaneously, rather than consecutively, and exceeded three consecutive weeks duration.
The CRA’s position in Fortnum was outlined in paragraphs 11 and 20 of the decision where it was stated, “the word “course” must be narrowly construed as referring to a single course on a particular subject”. The taxpayer was “not entitled to the tuition tax credit for the summer semester since it consisted of ten separate courses of one or two week duration, each separately coded with different professors or instructors”.
However, Justice Smith stated in his decision that “[a] textual, contextual and purposive analysis of the subject provision leads me to conclude that the tuition fee paid by the Appellant in respect of the summer semester meets the requirements of paragraph 118.5(1)(b) of the Act.” It appears, therefore, that the court applied the three consecutive week requirement to the summer semester as a whole, rather than to each individual course in the semester.
Our Comments
Our interpretation of subparagraph 118.5(1)(b)(i) of the Act, as explained in paragraph 2.10 of Income Tax Folio S1-F2-C2, Tuition Tax Credit, has generally not changed as a result of the Tax Court of Canada's decision in Fortnum. As referenced above, this case was heard by the Tax Court of Canada under the Informal Procedure. Section 18.28 of the Tax Court of Canada Act provides that decisions rendered as a result of this procedure do not have precedential value.
Notwithstanding this, the CRA will consider a course of less than 3 consecutive weeks duration to satisfy the requirement in subparagraph 118.5(1)(b)(i) in situations factually similar to Fortnum. Tuition fees paid in respect of a course in these circumstances may therefore be eligible for the tuition tax credit.
You may be interested to know that Income Tax Folio S1-F2-C2 is in the process of being updated to incorporate certain legislative amendments enacted through Budget 2017 and 2019. As part of this review, consideration will be given to updating the folio to reflect this position.
If you have any further questions in relation to this matter, please don’t hesitate to contact me.
Yours truly,
Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
