Cristofaro v. Agence du revenu du Québec, 2020 QCCQ 1461, rev'd 2021 QCCA 1025

The taxpayer, who was an Ontario resident, paid taxes in several provinces including Quebec as a result of his professional firm’s business activities. The ARQ reassessed to reduce to nil his claim for tuition credits that had been transferred to him by his daughter (also an Ontario resident) who was studying at a university in Scotland. The Quebec transfer provision required that she file a Quebec return, and she ultimately filed a nil return (she had no Quebec sources of income). In its decision, the ARQ stated that “as the Plaintiff’s daughter is not subject to Quebec income tax, she is not entitled to the applicable tax credit, and as such cannot transfer it to the Plaintiff”.

Cameron JCQ stated (at para 40):

The legislation does not suggest that in any year where a Quebec resident who is a student does not have liability for tax pursuant to articles 22 or 25 TA, she would not be able to transfer the unusable credit to a parent. To interpret the law as implying that would be a direct contradiction of the purpose of the legislation, that of permitting a taxpaying parent to reduce tax liability because of the support of the child for education.

He went on to indicate (at para. 49) that in any event, the daughter could be considered to be “subject to tax”:

… The income tax legislation … applies to all Canadian residents … because they may, in one year or another, earn business income in Quebec… . In that sense, the daughter is “subject to the tax” to use Revenu Québec’s phrase, because she could, potentially, depending on circumstances, get some business income generated in Quebec even without being a resident here.

Before cancelling the reassessments, Cameron JCQ stated (at para 57):

…On a direct reading of the text, giving the words their ordinary meaning, … the fact that the student does or does not have to pay a tax in a given year does not have a bearing on the option of the parent using the credit. The Court reaches the same conclusion on a reading of the text in light of its purpose, that is reflective of the policy objective in play, that of encouraging persons who pay taxes in Quebec to support their children in their studies… . In that light, a generous interpretation should be given, … and the Court should not read in restrictions that are not to be found in the legislator’s choice of the words used and those not used.

In 2003-0026827, CRA applied Oceanspan to find that a non-resident student who has no Canadian sources of income is precluded from transferring her unutilized tuition credits to her resident father under ITA s. 118.9 because:

an individual who is not resident in Canada and who has no Canadian source income would not be entitled to the tuition and education tax credits. The individual is not liable to pay tax in Canada, and therefore has no need to utilize the provisions permitting the tax credits.

Although this federal position does not appear to have been mentioned to him, Cameron JCQ rejected a similar position advanced by the ARQ to justify the denial of a tuition credit transfer (under the Quebec equivalent of s. 118.9) by a daughter studying in Scotland, who was resident in Ontario and had no Quebec sources of income, to her father, also an Ontario resident, who had Quebec professional income allocated to him by a cross-country professional firm. Cameron JCQ stated:

The legislation does not suggest that in any year where a Quebec resident who is a student does not have liability for tax pursuant to articles 22 or 25 TA, she would not be able to transfer the unusable credit to a parent. To interpret the law as implying that would be a direct contradiction of the purpose of the legislation, that of permitting a taxpaying parent to reduce tax liability because of the support of the child for education.

He went on to indicate (at para. 49) that in any event, the daughter could be considered to be “subject to tax” (or “liable for tax” to use his preferred translation, and also essentially the phrase considered in Crown Forest):

… The income tax legislation … applies to all Canadian residents … because they may, in one year or another, earn business income in Quebec… . In that sense, the daughter is “subject to the tax” to use Revenu Québec’s phrase, because she could, potentially, depending on circumstances, get some business income generated in Quebec even without being a resident here.