9 April 2002 External T.I. 2002-0121805 - Part-year residents, transfer of credits

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 CCRA.

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

Principal Issues: Can a part-year resident taxpayer claim the full amount of the unused tuition and education credits transferred by the taxpayer's child who is also a part-year resident to the taxpayer, where the taxpayer and the child become resident in Canada on the same day and the tuition and education credits relate to the period during which both the taxpayer and the child are resident in Canada?

Position: Yes, based on the facts of this case.

Reasons: Based on the facts of this case, for purposes of subparagraph 118.91(b)(ii) of the Act, the full amount of the child's unused tuition and education credits transferred to the taxpayer can reasonably be considered applicable to the period throughout which the taxpayer is resident in Canada. However, a reasonable proration may be required under subparagraph 118.91(b)(ii) if the facts are different.

XXXXXXXXXX 								2002-012180
S. Wong

April 9, 2002

Re: Transfer of Tuition and Education Credits for Part-Year Resident

Dear XXXXXXXXXX:

We are writing in reply to your letter of February 1, 2002, in which you requested our opinion regarding the application of section 118.91 and section 118.9 of the Income Tax Act (the "Act") to the situation described below.

The Situation

1. A taxpayer and a dependant child, who have never been resident in Canada prior to July 1, 2002, will become resident in Canada on July 1, 2002.

2. For the 2002 taxation year, the dependant child has no income from any source for Canadian tax purposes.

3. The child will attend a university commencing September, 2002. We have assumed for purposes of our comments below that tuition fees are paid for the child's attendance at the university in respect of the period from September, 2002, to December 31, 2002, and that such tuition fees qualify for the tuition credit pursuant to paragraph 118.5(1)(a) of the Act. We have also assumed that the child's attendance at the university during the period from September, 2002, to December 31, 2002, satisfies the requirements for the education credit as set out under subsection 118.6(2) of the Act.

4. Pursuant to section 118.81 of the Act, the child will designate the taxpayer (and only the taxpayer) for the purpose of transferring all or part of his or her unused tuition and education tax credit for the 2002 taxation year to the taxpayer. The amount designated will be limited to the amount calculated under paragraph 118.81(a) of the Act.

You would like our confirmation that, in the circumstances outlined above, the taxpayer would be allowed to claim a tax credit for the 2002 taxation year under section 118.9 of the Act of up to a maximum amount of $800 in respect of the tuition and education credits transferred by the dependant child to the taxpayer.

Our Comments

Your letter of February 1, 2002 appears to describe a fact situation involving specific taxpayers. As explained in Information Circular 70-6R4, dated January 29, 2001, it is not this Directorate's practice to comment on the tax consequences applicable to a specific taxpayer in respect of particular circumstances other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments which may be of assistance.

Section 118.9 of the Act provides that a taxpayer may claim a tax credit for a year in respect of the tuition and education credit transferred for the year by the taxpayer's child to the taxpayer. Section 118.81 of the Act provides for the amount of the tuition and education credit that can be transferred for the year by the child to the taxpayer, which is generally calculated by taking the lesser of $800 and the total of the child's tuition and education tax credits for the year minus the child's tax payable for the year determined before claiming those credits and all other personal credits (other than certain listed credits).

Where the taxpayer's child is a part-year resident, subparagraph 118.91(b)(i) of the Act provides that for the part of the year throughout which the child is resident in Canada, the child may claim the tuition and education credits allowed under sections 118.5 and 118.6 provided that such credits can reasonably be considered wholly applicable to the resident period, as if the resident period were a whole taxation year. Where the taxpayer is also a part-year resident, subparagraph 118.91(b)(ii) of the Act provides that the taxpayer is allowed only such part of the tax credit permitted under section 118.9 (i.e., the unused tuition and education tax credits transferred by the child to the taxpayer) as can reasonably be applicable to the period throughout which the taxpayer is resident in Canada, as if such resident period were a whole taxation year.

In the situation described above, pursuant to subparagraph 118.91(b)(i) of the Act, the dependant child is allowed the tuition and education tax credits with respect to the period from September, 2002, to December 31, 2002, as calculated under sections 118.5 and 118.6 of the Act, since such credits are wholly applicable to the period throughout which the child is resident in Canada (i.e., July 1, 2002, to December 31, 2002). Assuming that the child has no income from any source and therefore no tax payable for the 2002 taxation year, the child may transfer all or part of his or her unused tuition and education credits with respect to the period from September, 2002, to December 31, 2002, to the taxpayer up to a maximum of $800, pursuant to section 118.81 of the Act.

Based on the facts and assumptions described above, we are of the view that, for purposes of subparagraph 118.91(b)(ii), the full amount of the child's unused tuition and education credits with respect to the period from September, 2002, to December 31, 2002, transferred by the child to the taxpayer under section 118.81, up to a maximum of $800, can reasonably be considered applicable to the period in 2002 throughout which the taxpayer is resident in Canada (i.e., July 1, 2002, to December 31, 2002). On that basis, we confirm that the taxpayer would be allowed to claim under section 118.9 of the Act a tax credit for the 2002 taxation year of the full amount of the tuition and education tax credits with respect to the period from September, 2002, to December 31, 2002, transferred by the child to the taxpayer, up to a maximum of $800.

We note, however, there may be situations where a proration of a taxpayer's claim under section 118.9 may be required under subparagraph 118.91(b)(ii), for example, where the taxpayer becomes resident in Canada after the time the child becomes resident in Canada. The determination of what would be a reasonable proration for purposes of subparagraph 118.91(b)(ii) would have to be determined based on the facts of each case.

We trust that our comments will be of assistance to you.

Yours truly,

Jim Wilson
Section Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch