23 November 2000 External T.I. 2000-0030565 - 118.5

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether fees paid to the XXXXXXXXXX qualify for the tuition tax credit, deduction as professional dues, a business expense or eligible capital expenditure.

Position TAKEN:

1. Tuition credit - No.

2. Employees' professional dues - No.

3. Business expense - No.

4. Eligible capital expenditure - Maybe.

Reasons FOR POSITION TAKEN:

1. Fees are not in respect of tuition, but are simply XXXXXXXXXX fees (not forming an integral part of a course of study).

2. Do not fit definition of deductible dues in paragraph 8(1)(i).

3. Capital in nature. Excluded under paragraph 18(1)(b).

4. Eligible capital expenditure - may qualify if incurred in respect of the business of the taxpayer.

XXXXXXXXXX 2000-003056
T. Young
November 23, 2000

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letters of January 26 and May 23, 2000, requesting our opinion on whether the fees paid to write the XXXXXXXXXX or to transfer credits qualify for the tuition tax credit or can otherwise be deducted for tax purposes. We apologise for the delay in responding to your letter.

XXXXXXXXXX

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. However, we are prepared to offer the following general comments.

The Agency's comments with respect to the tuition tax credit are provided in Interpretation Bulletin IT-516R2, "Tuition Tax Credit" (copy enclosed). Paragraph 26 of IT-516R2 states in part:

26. The following items that relate to a particular program (whether identified separately or included as course or subject fees) are considered eligible tuition fees:

(a) admission fees;
(b) charges for use of library or laboratory facilities;
(c) exemption fees;
(d) examination fees (including re-reading charges);
(e) application fees (but only if the student subsequently enrols in the institution);
(f) confirmation fees;
(g) charges for a certificate, diploma or degree;
(h) membership or seminar fees that are specifically related to an academic program and its administration;
(i) mandatory computer service fees; and
(j) academic fees.

As well, as stated in paragraph 2 of IT-516R2, the fees must be paid either to:

• an educational institution in Canada that is a university, college or other educational institution providing courses at a post-secondary school level (subparagraph 118.5(1)(a)(i) - see also 3 below), or
• an educational institution in Canada certified by the Minister of Human Resources Development to be an educational institution providing courses (other than courses designed for university credit) that furnish a student with skills for, or improve a student's skills in, an occupation (subparagraph 118.5(1)(a)(ii)).

Based on the information you provided, it appears that the fees paid to XXXXXXXXXX are paid solely to write the exam or for administrative purposes (XXXXXXXXXX) and not as part of an educational program. To be eligible tuition fees, they must form an integral part of a course of studies. Further, it appears that XXXXXXXXXX is neither a university, college, or other educational institution offering courses at a post-secondary level nor an educational institution certified by the Minister of Human Resources Development. Therefore, the fees would not qualify for the tuition tax credit.

You also asked if the fees would be deductible as employees' professional fees or dues. Paragraph 8(1)(i) of the Act sets out the rules for deducting professional dues paid by employees. To be deductible, the dues or fees must be annual fees, as opposed to entrance or initiation fees. Paragraph 1 of IT-158R2, "Employees' professional membership dues" (copy enclosed), states:

An employee may deduct annual professional membership dues in computing the income or loss from an office or employment to the extent that they may reasonably be regarded as applicable to that source of income and provided that

(a) they are annual dues (in contrast with entrance fees) necessary to maintain professional status,

(b) the amount claimed is paid in the taxation year and the employee is not reimbursed or entitled to be reimbursed, and

(c) the professional status is recognized by a Canadian, provincial, or foreign statute.

Based on the information you provided, it appears that the XXXXXXXXXX exam or transfer fees are not deductible as professional dues.

You also inquired if the fees could be deducted as a business expense. In order to be deductible as a business expense as professional fees, the expense would have to be current in nature and not providing a lasting benefit. However, because the XXXXXXXXXX and transfer fees are expected to result in a lasting benefit to the individuals, the costs incurred are capital in nature and, pursuant to paragraph 18(1)(b) of the Act, are not deductible as a business expense. However, if the costs are incurred as part of a business, they may qualify as "eligible capital expenditures" [see IT-143R2, "Meaning of eligible capital expenditure"(copy enclosed)]. Paragraph 28 of IT-143R2 states:

Initiation or admission fees paid to an organization e.g., for call to the bar or for membership in a professional accounting institute are eligible capital expenditures where it can be shown that the annual membership fees of the organization are allowable deductions in computing income of a business.

You may also wish to consult IT-364, "Commencement of Business Operations". Paragraph 4 states:

Another illustration of the time when a business commenced might be a corporation that was formed for the purpose of providing cable television service. An essential preliminary requirement for the carrying on of a business of that kind is the obtaining of a licence from the regulatory authority. Consequently, such a business should be viewed as having commenced not later than the day when steps were taken in a positive way to obtain a licence. While normal operations could not commence until the licence was obtained, the nature of the business required that studies and representations be undertaken to persuade the regulatory authority to issue the licence and the business itself commenced when these activities were started.

Although paragraph 4 deals with obtaining a license by a corporation, a parallel may be drawn with the XXXXXXXXXX situation.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings Directorate

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