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.
Principal Issues: 1. Whether individuals taking a particular course are eligible to claim the education or tuition tax credit.
2. Whether licence fees paid by an employee are deductible for income tax purposes.
Position: 1. Question of fact.
2. No deduction from employment income. Deductible from business income.
Reasons: 1. Individual must meet the requirements outlined in sections 118.5 and 118.6 of the Act.
2. In the employment income context, the requirement of paragraph 8(1)(i) is not met. For business income, the amount will constitute an expense incurred for the purpose of earning business income.
December 14, 2009
XXXXXXXXXX HEADQUARTERS
XXXXXXXXXX Income Tax Rulings
Client Relations Directorate Directorate
Corporate Strategies and Renee Sigouin
Business Development Branch (613) 957-2128
`
Attention: XXXXXXXXXX
XXXXXXXXXX 2009-033393Fees paid for courses, exams and licences
We are writing in response to your email correspondence dated July 24, 2009 wherein you requested our comments with respect to whether individuals (the "Individuals") taking a particular course and related exam are entitled to claim an education tax credit and/or tuition tax credit and additionally, whether certain licence fees are deductible for income tax purposes.
We understand that XXXXXXXXXX , Individuals who would like to work XXXXXXXXXX as XXXXXXXXXX and various other similar occupations must first obtain a licence XXXXXXXXXX . The XXXXXXXXXX also requires the Individuals to complete and pass mandatory training and testing before they can apply for their licence.
XXXXXXXXXX the training will be taken at a recognized community college, private career college or a XXXXXXXXXX business that delivers the XXXXXXXXXX curricula. The XXXXXXXXXX will not be regulating or collecting fees related to the training and testing, however, it will collect the licencing fees. The Individuals will incur all fees related to the training and testing as well as the cost of obtaining the licence.
Education tax credit ("ETC")
The Canada Revenue Agency's ("CRA") general views regarding the ETC is contained in Interpretation Bulletin IT-515R2, "Education Tax Credit" ("IT-515R2") and Pamphlet P105 "Students and Income Tax" ("P105") which are available on the CRA web site at http://www.cra-arc.gc.ca.
Pursuant to subsection 118.6(2) of the Income Tax Act (the "Act"), a student's ETC is based on the number of months in which they are enrolled as a full-time student in a "qualifying educational program" at a "designated educational institution". A part-time student may also be eligible for a reduced ETC if he or she is enrolled in a "specified educational program". These terms are defined in subsection 118.6(1) of the Act and are explained in more detail in IT-515R2 and P105.
As described in P105, an educational institution in Canada is a designated educational institution if it is a:
(a) Canadian university, college, or other educational institution providing courses at a post-secondary school level; or
(b) Canadian educational institution certified by Human Resources and Social Development Canada ("HRSDC") providing courses that develop or improve skills in an occupation, other than courses designed for university credit.
In addition to the institution being a designated educational institution, the student must be enrolled in courses offered by the institution which meet the definition of a "qualifying educational program" or "specified educational program". A qualifying educational program is a program running for at least 3 consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). A specified educational program is one that lasts at least 3 consecutive weeks and requires that the student spend not less than 12 hours in the month on courses in the program. As described in P105, instruction or work includes lectures, practical training and laboratory work. It also includes research time spent on a post-graduate thesis.
If a mandatory final exam that is an integral part of a course of study is taken in a particular month where there is no formal instruction or classroom activity, such month may qualify for the ETC, provided the student otherwise qualifies for the credit. Other periods where there are no classes, such as reading week, may be included in the three-week period as long as the hourly requirement is met.
A program is not considered a qualifying or specified educational program if the student receives, from a person with whom he or she deals at arm's length, a grant, reimbursement, benefit or allowance for that program, with certain limited exceptions.
If the institution offering the program satisfies itself that it meets the definition of a designated educational institution and the student is enrolled in a program that meets the above noted criteria for either a qualifying educational program or a specified educational program, the institution may issue a T2202 to the student. However, the receipt of a T2202 from an institution does not guarantee that the student will qualify for the ETC. Eligibility for the ETC is determined on a case-by-case basis. The student must satisfy all the conditions of subsection 118.6(2) in order to qualify. The CRA can only determine whether the student has met these requirements after the student's specific fact situation is reviewed.
Tuition tax credit ("TTC")
The CRA's general views regarding the TTC are contained in Interpretation Bulletin IT-516R2, "Tuition Tax Credit" ("IT-516R2") and P105. As outlined in section 118.5 of the Act, in general terms the TTC is available to students who were, during a calendar year, enrolled at an educational institution in Canada that meets either condition (a) or (b) above.
The tax credit is available with respect to any fees for the individual's tuition paid in respect of the year to the educational institution if the total of those fees exceeds $100. A list of the types of expenses related to a course that will qualify as eligible tuition fees are provided in P105. You will note that the list specifically includes admission fees and examination fees that are related to examinations comprising part of the educational program itself. Insofar as licence fees paid to obtain the authority to work in the particular field are not paid in connection with the program of study, they would not qualify for the TTC.
Individual's eligibility for ETC or TTC
Whether Individuals undertaking the XXXXXXXXXX course at a recognized community college, private career college or XXXXXXXXXX business would be eligible to claim the ETC or TTC is a question of fact that we are unable to make based on the limited information provided (i.e., in the absence of the specific names or status of the institutions providing the course and details of the instruction or work time required there-under).
Deductibility of Licence Fees
You have also asked whether licence fees paid by Individuals upon completing and passing the mandatory training and testing, as required under XXXXXXXXXX , would be deductible for income tax purposes. Subsection 8(2) of the Act provides that no deductions are allowed in computing a taxpayer's income for a taxation year from an office or employment except as specifically enumerated in section 8 of the Act. Paragraph 8(1)(i)(i) of the Act provides a deduction for amounts paid in the year as annual professional dues that are required to maintain a professional status recognized by statute. However, in our view, the payment of licence fees as required under XXXXXXXXXX from an Individual's employment income is not deductible under this or any other provision of the Act.
Where the Individual is self-employed, annual licence fees incurred for purposes of gaining or producing income from the Individual's business will be deductible pursuant to paragraph 18(1)(a) of the Act. General information regarding the deductions available to self-employed individuals is provided in Guide 4002, "Business and Professional Income 2008" which is available on our website. The deduction for annual licence fees is discussed specifically in the Guide at line 8760.
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 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.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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