18 December 2002 External T.I. 2002-0150305 - TUITION CARRYOVER NON-RESIDENT

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 unused tuition credits be carried over indefinitely by a Canadian living and attending school in the U.S.?

Position: Depends on the facts.

Reasons:

A non-resident with no income subject to Canadian tax will not be entitled to the tuition credit or the carry-over. If the student attending school in the U.S. is a resident of Canada for Canadian income tax purposes, the unused tuition fee credits are available for carry-forward indefinitely, even if the student subsequently ceases to be a resident of Canada.

XXXXXXXXXX 			2002-015030
G. Kauppinen
December 18, 2002

Dear XXXXXXXXXX:

RE: Carry-forward of Tuition Tax Credits by Non-residents

We are writing in reply to your e-mail dated June 25, 2002 regarding the carry-forward of unused tuition tax credits.

Written confirmation of the consequences inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, issued by the Canada Customs and Revenue Agency ("CCRA"). Where the particular transactions are partially completed or completed, the enquiry should be sent to the relevant Tax Services Office. However, we are providing the following comments which are of a general nature. These comments do not constitute an advance income tax ruling and accordingly are not binding on the CCRA. All publications referred to herein can be accessed on the CCRA website at the following address: http://ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

A taxpayer has been attending college in the U.S. The taxpayer graduated in XXXXXXXXXX of this year and the taxpayer is contemplating remaining in the U.S. for the next year or two.

You have reviewed Interpretation Bulletin IT-516R2 and you have not found answers to the following questions:

1. Is the taxpayer required to file Canadian tax returns while he or she is in the U.S.?

2. If the taxpayer is required to file Canadian tax returns while he or she is in the U.S., will the taxpayer be subject to dual tax?

3. Do accumulated tuition tax credits ever expire if they are not claimed in the year that the tuition is paid by the taxpayer?

4. Will the taxpayer's staying in the U.S. for any period of time after graduation affect the status of the tuition tax credits?

5. Will there be any consequences relating to his or her tuition tax credits or income tax when the taxpayer returns to Canada?

Our Comments

1. Under the Income Tax Act (the "Act"), a resident of Canada is subjected to income taxes. The determination of whether a specific individual is a resident of Canada is a question of fact. Consequently, you have to determine whether a taxpayer is considered to be a resident of Canada for Canadian income tax purposes while he or she attended college in the U.S. In this regard, you should refer to Interpretation Bulletin IT-221R3 dated December 21, 2001, Determination of an Individual's Residence Status ("IT221R3"). Normally, a resident of Canada is required to file a Canadian income tax return if they owe taxes for the particular taxation year. You should refer to the General Income Tax and Benefit Guide ("Guide") under the heading "Do you have to file a return?" for further information in this regard. As noted in the Guide, even if no income taxes are owed, the taxpayer may wish to file a tax return in order to carry forward any unused tuition tax credits.

2. The taxpayer will be required to file a Canadian income tax return while living in the U.S. if he or she is considered to be resident in Canada for Canadian income tax purposes or he or she has certain Canadian source income that is subject to Canadian income tax. The U.S. Taxing authorities will determine the taxpayer's status for U.S. income tax purposes. Generally, all citizens and residents of the U.S. will be subject to U.S. income tax. If the taxpayer is required to file income tax returns for both Canada and the U.S., there will be foreign tax credits allowed on either or both income tax returns to minimize or eliminate double taxation. The provisions of the Canada-U.S. Income Tax Convention will be relevant in this regard.

Section 118.61 of the Act provides a taxpayer with a deduction for unused tuition tax credits that are carried forward from a previous year. The tuition tax credit, as well as the carryforward of the unused portion of tuition tax credits, must be claimed before any part of those credits can be transferred to a spouse, common-law partner or supporting individual and before claiming any donation or dividend tax credits. Subsection 118.61(3) of the Act stipulates that the unused tuition tax credit at the end of 2000 is equal to 16/17 of what it would otherwise be. This adjustment is required to reflect the change in the rate at which personal tax credits are computed for 2001 and subsequent taxation years.

3. Assuming that the taxpayer is considered to be a resident of Canada for Canadian income tax purposes while he or she was attending school in the U.S., it may be that he or she will be considered to become a non-resident of Canada if he or she remains in the U.S. after graduation. This will be a question of fact and further reference should be made to IT-221R3 in this regard. However, if he or she is considered to be resident in Canada while attending school in the U.S., he or she will be entitled to carry forward any unused tuition tax credits indefinitely, even if he or she ceases to be a resident of Canada for Canadian income tax purposes subsequent to graduating.

4. If the taxpayer becomes a non-resident for Canadian income tax purposes while living in the U.S., he or she will again become taxable on his or her world income when he or she returns to Canada and re-establishes Canadian residency. If the taxpayer was entitled to unused tuition tax credits earned while he or she was attending school in the U.S. as discussed in 3 and 4 above, these credits will be allowed against the taxpayer's future Canadian income taxes otherwise payable under Part I of the Act.

We trust the foregoing comments are of assistance.

Yours truly,

Mickey Sarazin
Manager
Aboriginal and Non-Profit Section
Financial Industries Division
Income Tax Rulings Directorate