11 March 1998 External T.I. 9802775 - computer service fees

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 Department.

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

Principal Issues:

Will mandatory $700 paid a technical college each year for use of a laptop computer and applicable software together with access to the college's server still qualify for tuition tax credit if the college were to provide the student with the option to acquire the computer at the end of the student's program at a price based on fair market value.

Position:

The option should not taint the tuition fees.

Reasons:

Student is paying full fair market value . No part of the mandatory $700 fee will accrue to the student in respect of the purchase of the computer.

XXXXXXXXXX 980277

Attention: XXXXXXXXXX

March 11, 1998

Dear Sirs:

Re: Mandatory Computer Service Fees, Tuition Credit

This is in reply to your letter of February 3, 1998 and our telephone conversation (Brake/XXXXXXXXXX), relating to whether fees for mandatory computer services would qualify as tuition fees in the scenario described below:

Students registered must pay a fee each semester to the college for use of a laptop computer and applicable software. This also includes access to servers within the college.

Since the servicing of these computers and the maintenance and updating, etc. is the responsibility of the college, it would not be feasible or possible to provide this service if students were to provide their own computers of various makes or models which may or may not be compatible to the college's system and neither would the staff servicing these computers be capable of providing this service.

It is possible that the students could have an option to acquire the computer at fair market value at the end of their program (usually two years). While these computers at the end of two years could be suitable for classroom use, they would not be an attractive purchase for most students given the obsolesce factor because of better and more capable computers becoming available on a continuous basis. There is no correlation between the amount of the fees paid and the selling price to be set by the college, should a student decide to purchase the unit at the end of his/her program.

Our Comments

Given the situation as described above, it is our opinion that the fees for mandatory computer services qualify for purposes of tuition tax credits in that the student is obligated to pay the computer service fees which relate entirely to the program itself and that actual credit in respect of the fees will not accrue to the student in respect of the selling price of the computer at the end of the program.

The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 22 of Information Circular 70-6R3, dated December 30, 1996, this is not an advance tax ruling and is therefore not binding on Revenue Canada.

We trust our comments will be of assistance to you.

Yours truly,

James Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch