23 May 2003 Internal T.I. 2003-0016537 - TUITION CREDIT AND FOREIGN TAX CREDIT

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 taxpayer claim the foreign tax credit before calculating the tuition tax credit and thus carry forward unused tuition amounts?

Position: Yes, prior to the coming into force of December 20, 2002 Technical Amendment

Reasons:

In calculating "tax payable" for variable "C", deductions under certain sections are carved out. Until the coming into force of the December 20, 2002 Technical Amendment, the foreign tax credit is not carved out and so can be taken before calculating the carry forward.

				May 23, 2003

	SAINT JOHN TSO		HEADQUARTERS
				Income Tax Rulings
	Attention:  Louise McShane			  Directorate
				Renée Shields
(613) 948-5273

				2003-001653

Interaction of Tuition Tax Credit and Foreign Tax Credit

This is in response to your memorandum of May 1, 2003 requesting clarification of the proper interpretation of the interaction between the tuition tax credit and the foreign tax credit.

Your memorandum indicates that you have been relying on the position reflected in document number 2001-0076567. This technical interpretation confirms that in calculating the carry forward of unused tuition amounts pursuant to the formula in subsection 118.61(1) of the Act, variable "C" effectively permits a foreign tax credit to reduce an individual's "tax payable". This reduction to "tax payable" results in a smaller value for variable "C" and therefore increases the amount of tuition carry forward.

You have requested that we confirm our position because document 2000-0011445 presents a differing interpretation than that discussed above. We note that in October 2002, document 2000-0011445 was revised to include the following cautionary note: "The position outlined in this interpretation has been revised. Please refer to 2001-0076567 for revised position." Accordingly, we can confirm that at present, document 2001-0076567 reflects the correct application of subsection 118.61(1) of the Act.

We note that there is a pending amendment to subsection 118.61(1) of the Act and in particular, a change to the wording of variable "C". Currently, the formula requires an individual to calculate Part I tax payable as if no amount were deductible under any of sections 118.1, 118.2, 118.5, 118.6, 118.62, 118.8, 118.9 and 121. The absence of a reference to subsection 126(1) in this formula means that in calculating the unused tuition and education tax credits, the "tax payable" can reflect the foreign tax credit. The proposed legislative change to variable "C" will require an individual to calculate tax payable under Part I as if no amount were deductible under Division E (except for deductions under sections 118, 118.3, 118.61 and 118.7). Since the foreign tax credit is calculated under Division E, it will not reduce the tax payable for purposes of calculating the tuition and education tax credit carry forward. Once proclaimed, this legislative change will be applicable to the 2002 and subsequent taxation years.

We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch