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Citation: 2005TCC435
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Date: 20050715
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Docket: 2004-4798(IT)I
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BETWEEN:
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PHIVOS MAOU,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Bowman, C.J.
[1] This appeal is from a reassessment for the appellant's 2003 taxation year. It is a sad case and one in which I would have liked to do something to help Mr. Maou but I do not think that I can, however deserving he may be as a matter of fairness.
[2] In brief, the case has to do with a claim by Mr. Maou to deduct as a non-refundable credit in computing his tax payable for 2003 an amount of unused tuition and education amounts of his son for a prior year.
[3] Mr. Phivos Maou's son, Constantinos Iracleous (Constantinos), was enrolled in dentistry in a university in the United States. He passed away May 15, 2001, his final year of university, leaving substantial unused tuition and education tax credits.
[4] The estate's return for 2001 was processed and an assessment was issued to "The Estate of the Late Constantinos Iracleous". It was sent to the address of the appellant who had been appointed the trustee of the estate without will. The assessment read in part:
According to this reassessment, you have unused federal and Ontario tuition and education amounts of $98,127 and $103,127, respectively, that you can carry forward to a future year.
[5] Mr. Maou or his representative who prepared his return of income apparently interpreted this to mean that he could personally claim the unused tax credits. In his 2003 return, Mr. Maou claimed $30,000 as tuition and education amounts transferred to him by Constantinos. Since the result is an unfortunate one and rather unfair in light of the tragic death of Constantinos as well as the fact that Mr. Maou paid virtually all of his son's tuition fees, I shall set out briefly and probably overly simplistically my understanding of the overall scheme of the Income Tax Act as it relates to this appellant.
[6] Paragraph 118.5(1)(a) of the Act provides that an individual may claim a tax credit in respect of fees paid to certain types of educational institutions in Canada. Paragraphs (b) and (c) extend that right to individuals in full-time attendance at U.S. institutions or commuting from Canada to attend US institutions.
[7] The tax credit was essentially 16% of the fees paid.
[8] Under ss. 118.6(2) a further credit is granted to individuals attending educational institutions or enrolled in designated educational programs. The exact conditions of these credits or the definition of the terms are not necessary for the purpose of these reasons. Essentially it is the "appropriate percentage" (16% in 2003) of amounts determined by a formula in which $400 or $120 is multiplied by the months of enrolment.
[9] Where a student has little or no taxable income or taxes to pay and therefore no need for the tax credit, he or she can do one of two things or a combination of both. Under s. 118.61, the student can carry forward the unused tax credits to future years, transfer them to a parent or grandparent or transfer part and carry part forward. What the student cannot do, however, is transfer to a parent or grandparent part or all of the unused credits for a previous year.
[10] Section 118.9 reads:
Transfer to parent or grandparent.
Where for a taxation year a parent or grandparent of an individual (other than an individual in respect of whom the individual's spouse or common-law partner deducts an amount under section 118 or 118.8 for the year) is the only person designated in writing by the individual for the year for the purpose of this section, there may be deducted in computing the tax payable under this Part for the year by the parent or grandparent, as the case may be the tuition and education tax credits transferred for the year by the individual to the parent or grandparent, as the case may be.
[11] Section 118.81 reads:
Tuition and education tax credits transferred.
In this subdivision, the tuition and education tax credits transferred for a taxation year by a person to an individual is the lesser of
(a) the amount determined by the formula
A - B
where
A is the lesser of
(i) the total of all amounts that may be deducted under section 118.5 or 118.6 in computing the person's tax payable under this Part for the year, and
(ii) $800, and
B is the amount that would be the person's tax payable under this Part for the year if no amount were deductible under this Division (other than an amount deductible under section 118, 118.3, 118.61 or 118.7), and
(b) The amount for the year that the person designates in writing for the purpose of section 118.8 or 118.9.
[12] Strange as it may seem an individual cannot transfer to his or her parent or grandparent unused credits carried forward from a previous year. The reason is that in the formula in s. 118.81 a component of A is only an amount that can be deducted under s. 118.5 or 118.6 not 118.61. The result is that A is the lesser of zero and $800, that is to say, zero since no amount is deductible under s. 118.5 or 118.6. If Constantinos' estate had any income it could carry forward the credits to later years but since it does not the credits are lost.
[13] The result is anomalous but the statute is clear and I must with regret dismiss the appeal.
Signed at Ottawa, Canada, this 15th day of July 2005.
Bowman, C.J.
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