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:
An unlimited liability company (Canco) incorporated on XXXXXXXXXX is a wholly owned subsidiary of Canco Holding. Canco Holding is incorporated under the laws of a state in the United States and is a wholly owned subsidiary of a university (Universityco) outside Canada. Canco is a registered institution pursuant to the XXXXXXXXXX), which authorizes Canco to teach courses in XXXXXXXXXX at the post-secondary school level. Upon completion of required courses, degrees will be granted by Universityco, the university outside Canada. Universityco has applied for ministerial consent pursuant to the XXXXXXXXXX. All tuition fees will be paid to Canco.
1. Does Canco qualify as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act?
2. Does Canco qualify as an “other educational institution providing courses at a post-secondary school level” for the purposes of subparagraph 118.5(1)(a)(i) of the Act?
3. Will an individual be able to deduct, for a taxation year, an amount equal to the product obtained when the appropriate percentage for the year is multiplied by the amount of any fees for the individual’s tuition paid in respect of the year to Canco, provided that the total fees exceed $100 and provided that none of the exceptions contained in subparagraphs 118.5(1)(a)(ii.1) through (v) of the Act are applicable?
Position TAKEN:
1. Yes.
2. Yes.
3. Yes.
Reasons FOR POSITION TAKEN:
1. and 2. Canco qualifies as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act because Canco is a registered educational institution pursuant to the XXXXXXXXXX and as such, Canco is authorized to teach courses in XXXXXXXXXX at the post-secondary school level.
3. As Canco is considered to be an educational institution in Canada that is providing courses at a post-secondary level, for the purpose of computing tax payable under Part 1 of the Act, where an individual was during the year a student enrolled at Canco, the individual may deduct an amount equal to the product obtained when the appropriate percentage for the year is multiplied by the amount of any fees for the individual’s tuition paid in respect of the year to Canco if the total tuition fees paid in respect of the year exceeds $100 and if none of the exceptions in subparagraphs 118.5(1)(a)(ii.2) through (v) apply.
XXXXXXXXXX
XXXXXXXXXX 3-982624
XXXXXXXXXX
XXXXXXXXXX, 1998
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX.
To the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by a Tax Services Office or a Tax Centre in connection with an income tax return already filed and none of the issues is under objection or appeal.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. XXXXXXXXXX (“Canco”) is an unlimited liability company incorporated on XXXXXXXXXX and is a “taxable Canadian corporation” as defined in subsection 248(1) of the Income Tax Act (the “Act”). Canco is also extra-provincially registered to carry on business in XXXXXXXXXX. Canco is a wholly owned subsidiary of XXXXXXXXXX (“U.S. Holdco”).
2. U.S. Holdco is incorporated under the laws of the state of XXXXXXXXXX and is a wholly-owned subsidiary of the XXXXXXXXXX (“Universityco”).
3. Universityco is a wholly-owned subsidiary of XXXXXXXXXX.
4.
XXXXXXXXXX
5. Canco was formed for the purpose of offering in Canada, university-level degree programs created specifically to serve the needs of the working adult population. Canco’s teaching/learning model and administrative services are designed around the unique needs and characteristics of the working adult population. Canco has adopted Universityco’s “Mission Statement” which reads as follows:
XXXXXXXXXX
6. Canco is a registered institution pursuant to the XXXXXXXXXX. Canco is authorized to teach courses in XXXXXXXXXX at the post-secondary school level.
7. Universityco has applied for ministerial consent pursuant to the XXXXXXXXXX. Universityco applied for the above consent prior to determining that a separate Canadian corporation would be responsible for all Canadian operations. The application has not yet been changed to reflect the use of a separate Canadian corporation.
8. Universityco is currently exploring the possibility of having Canco make an application under the XXXXXXXXXX to operate in XXXXXXXXXX.
9.
XXXXXXXXXX
10.
XXXXXXXXXX
11. To date, Canco has not received any tuition or other fees. All tuition fees will be paid to Canco. Canco expects to start receiving application fees shortly after the advanced income tax ruling is issued.
PROPOSED TRANSACTIONS
12. The operations of Canco will be conducted in accordance with its “Mission Statement”. To this end, it will provide courses at a post-secondary school level. Initially, only programs leading to the following degrees will be offered:
- Bachelor of Science in Business/Administration
- Bachelor of Science in Business/ Management
- Bachelor of Science in Business/Information Systems
- Master of Business Administration
- Master of Arts in Organizational Administration
13. In the future, as market need warrants, Canco may also elect to offer additional degree programs in the fields of education, nursing, counseling, computer information systems, information technology, human services and health services. The target market for these programs is comprised of working adults, 23 years of age and older. Undergraduates must be at least 23 years of age, have at least two years of work experience, and bring a GPA of at least 2.0 (or Canadian system equivalent) from previous college studies. Graduate students must hold a bachelor’s degree from a recognized institution, a minimum of three years of work experience, and a GPA of at least 2.5 (or Canadian system equivalent) in the last 60 semester credits of their undergraduate program. Because of the intensive nature of the degree programs, a strict attendance policy will be enforced.
14. Upon completion of the required courses, degrees will be granted by Universityco.
15. Canco currently wishes to open offices and campuses in each of XXXXXXXXXX. However, no office or campus will be opened in a particular province until Canco has complied with the relevant provincial legislation.
16. Since Canco is registered under the XXXXXXXXXX, it intends to move forward as quickly as possible to make its XXXXXXXXXX Campus operational. It is currently anticipated that Canco will be in a position to start teaching courses on or around XXXXXXXXXX.
17. In addition to the managerial employees and other staff, Canco will eventually employ a small cadre of full-time faculty members whose responsibility will be the oversight of the curriculum and supervision of the teaching faculty. Because of the unique educational needs of the population served by Canco (i.e. working adults), the ranks of the teaching faculty will be comprised primarily of “practitioner”-faculty members. These are working professionals who hold advanced academic degrees in the field in which they teach. These faculty members will go through a rigorous assessment and developmental process to be accepted as Canco faculty. All practitioner-faculty at the XXXXXXXXXX Campus will be hired from the professional population in the XXXXXXXXXX area.
18. Universityco employs a centralized process for creating standardized curriculum “modules”. Teams of faculty members who are experts in their disciplines and fields work with instructional designers to create individual courses. Canco will utilize courses created by Universityco, and Canco faculty members will participate with Universityco faculty members in the creation of courses. In each case, however, before a course is offered in Canada, it will be reviewed by a Canco faculty member who will make recommendations for adaptions that should be made to localize the course to Canada (to ensure that it reflects appropriately the differences between Canadian and U.S. practices in the disciplines being taught and to satisfy any differences in licensing, registration, or accreditation standards), and will participate in adapting the course. For courses that will be offered in Canada by Canco, Canadian textbook editions will be adopted wherever they are available. Canco faculty members will also be part of the centralized process for establishing the course requirements for a particular degree.
19. Canco intends to take steps to become recognized for the purpose of administering loans under the Canada Student Loans Act and/or the Canada Student Financial Assistance Act as soon as it meets certain minimum operational requirements.
XXXXXXXXXX
PURPOSE OF PROPOSED TRANSACTIONS
20. The purpose of the proposed transactions is to establish Canco as a post-secondary educational institution in Canada and to open offices and campuses in XXXXXXXXXX.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above and that Canco continues to comply with the relevant provincial legislation, our rulings are as follows:
1. Canco will qualify as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act.
2. Canco will qualify as an “other educational institution providing courses at a post-secondary school level” for the purposes of subparagraph 118.5(1)(a)(i) of the Act.
3. For the purpose of computing tax payable under Part 1 of the Act by an individual for a taxation year, an individual may deduct, where the individual was during the year a student enrolled in Canco, an amount equal to the product obtained when the appropriate percentage for the year is multiplied by the amount of any fees for the individual’s tuition paid in respect of the year to Canco, if the total of those fees exceeds $100 and provided that none of the exceptions contained in subparagraphs 118.5(1)(a)(ii.1) through (v) of the Act are applicable.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding provided that Canco commences teaching courses in Canada by XXXXXXXXXX.
These rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.
We wish to confirm that nothing in the above rulings should be construed as implying that Revenue Canada has agreed to or reviewed the determination of whether:
(a) Canco is a “designated education institution”, as defined in subsection 118.6(1) of the Act, for purposes of the education tax credit in subsection 118.6(2) of the Act; or
(b) an individual enrolled in Canco may deduct the education tax credit pursuant to subsection 118.6(2) of the Act for a taxation year.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
7
.../cont’d
.../cont’d
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