5 July 2013 External T.I. 2012-0472331E5 - tuition flying schools

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: Can the entire amount of fees paid in respect of the Airline Transport Pilot Licence -Integrated Course qualify for the tuition tax credit?

Position: It is a question of fact.

Reasons: The fees paid must be in respect of tuition.

XXXXXXXXXX
2012-047233
N. Shea-Farrow

July 5, 2013

Dear XXXXXXXXXX:

Re: Technical Interpretation Request – Flying School Tuition Fees

We are writing in response to your letter of November 27, 2012 on whether the entire amount of tuition fees paid in respect of the Airline Transport Integrated Course offered by XXXXXXXXXX can be included on the T2202A as eligible tuition fees.

Our Comments

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed an income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

The Canada Revenue Agency's (CRA) general views regarding the tuition tax credit is contained in the Folio S1-F2-C2 Tuition Tax Credit (S1-F2-C2) which recently replaced Interpretation Bulletin IT-516R2, Tuition Tax Credit.

Generally section 118.5 of the Income Tax Act (the "Act") allows a tuition tax credit where the individual was during the year a student enrolled at an educational institution in Canada that is certified by the Minister of Human Resources and Skills Development to be an educational institution providing courses, other than courses designed for university credit, that furnish a person with skills for, or improve a person's skills in, an occupation, for any fees for the individual's tuition paid in respect of the year to the educational institution.

The fees must also be paid to the educational institution described above in respect of an individual who is 16 years of age before the end of the year and the purpose of the individual's enrolment at the institution must reasonably be regarded as being to provide the individual with skills, or to improve the individual's skills, in an occupation. Thus tuition fees paid to these institutions only qualify where the student is taking flying lessons in order to become a commercial pilot or a professional instructor.

Fees are only eligible for the tuition tax credit to the extent that they can be considered to be paid in respect of tuition. Tuition is defined in the Concise Canadian Oxford Dictionary as "a fee paid for education or instruction" or "teaching or instruction, especially if paid for".

According to paragraph 2.39 of S1-F2-C2 fees for ground school and flight simulators are eligible for the tuition tax credit but costs incurred by a student in flying a personal aircraft while taking a course at a flying training school or club are not eligible.

In addition to ground school hours, according to paragraph 5 (d) of Standard 426 to comply with section 406.75 of the Canadian Aviation Regulations the requirements for the Airline Transport Pilot Licence –Integrated Course (ATPL-IC) include,

"(d) 205 hours flight time, including all flight tests, of which up to 55 hours may be instrument ground time consisting of at least:

(i) 105 hours of dual instruction flight time conducted by the holder of a flight instructor rating, of which 55 hours may be instrument ground time;
(ii) 100 hours pilot-in-command flight time supervised by the holder of a flight instructor rating; …"

Generally, the CRA only recognizes fees paid for flight hours to the minimum flight training requirements set out by Transport Canada. Fees paid for dual instruction flight time are considered to be fees paid in respect of tuition since the person is receiving flight instruction from a flight instructor. Fees paid for the pilot-in-command flight time that are supervised by the holder of a flight instructor rating may be considered to be fees in respect of tuition.

It is our understanding that the holder of a student pilot permit can only act as a pilot- in-command for the sole purpose of flight training or a flight test of any aircraft of the category to which the permit relates and in the case of flight training the training must be conducted under the direction and supervision of the holder of a flight instructor for that category of aircraft and for flight testing only when it is conducted by the person designated by the Minister of Transport.

If the pilot-in-command flight time is in accordance with the minimum standards set out by Transport Canada for the ATPL-IC, and is a part of systematic instruction or training that is under the direction and supervision of a holder of a flight instructor rating who is delivering the course, the fees paid in our opinion would be for tuition. If, for example, flight hours for pilot-in-command flight time are accumulated by renting a plane to enable the individual to gain flight experience, and are not a direct part of a course of instruction, the fees paid would not be for tuition. Such costs would essentially be for equipment rental as distinct from fees paid for teaching or instruction.

The tuition fees that are paid in respect of courses at flying schools or clubs should be reported on TL11B, Tuition, Education and Textbook Amounts Certificate – Flying School or Club.

We trust our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
For Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch