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 U.S. Holdco. U.S. Holdco 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 currently a registered institution pursuant to the XXXXXXXXXX which authorizes Canco to teach courses in XXXXXXXXXX at the post-secondary school level. Universityco intends to apply for registration pursuant to the XXXXXXXXXX and intends to operate an educational facility in Canada through a branch. 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 Universityco.
1. Does Universityco qualify as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act?
2. Does Universityco 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 Universityco, 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:
1. Yes.
2. Yes.
3. Yes.
Reasons:
1. and 2. Universityco will qualify as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act if Universityco becomes a registered educational institution pursuant to the XXXXXXXXXX and as such, Universityco will be authorized to teach courses in XXXXXXXXXX at the post-secondary school level.
3. If Universityco becomes a registered educational institution pursuant to the XXXXXXXXXX, Universityco will be 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 Universityco, 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 Universityco 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 983048
XXXXXXXXXX
XXXXXXXXXX, 1998
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of November 20, 1998, wherein you requested an advance income tax ruling on behalf of 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 (“Universityco”) is a wholly-owned subsidiary of XXXXXXXXXX corporation whose shares are listed on the XXXXXXXXXX.
2. XXXXXXXXXX (“U.S. Holdco”) is incorporated under the laws of the state of XXXXXXXXXX and is a wholly-owned subsidiary of the Universityco.
3. 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 U.S. Holdco.
4. The mission of Universityco is to serve the educational needs of the working adult population. The institution’s teaching/learning model and administrative services are designed around the unique needs and characteristics of the working adult population. Further, degrees are offered in fields and disciplines that serve to enhance the career-related professional goals of working adult students.
XXXXXXXXXX
5. Universityco’s “Mission Statement” reads as follows:
XXXXXXXXXX
XXXXXXXXXX
6. 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 is currently 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.
8. Universityco is in the process of making application under the XXXXXXXXXX.
9. XXXXXXXXXX classroom use. The “XXXXXXXXXX” of Canco will be operated from these sites.
10.
XXXXXXXXXX
11. To date, Canco has not received any tuition or other fees. Canco has received applications that will be held in sequence of their arrival to preserve the applicants’ priority in determining program availability. A $XXXXXXXXXX fee will eventually be charged to process the applications; however, this fee will not be charged nor will the applications be processed until such time as the advance income tax ruling is issued.
12. Universityco is currently taking steps to register the trademark “Universityco” in Canada pursuant to the Trademark Act (Canada). Universityco is also considering the possibility of registering the use of the trade name XXXXXXXXXX.
13. XXXXXXXXXX campuses of Universityco are currently approved for student loans purposes as follows:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
14.
XXXXXXXXXX
15. Because Universityco is required to operate through a branch in XXXXXXXXXX, pursuant to the provincial statute, Universityco would prefer to operate in the same legal form across Canada. In other words, Universityco would prefer not to operate through a subsidiary in XXXXXXXXXX and branches in XXXXXXXXXX. Accordingly, Canco has taken the strategic decision to cease the commencement of operations in XXXXXXXXXX as was originally the proposed transaction described in Advance Income Tax Ruling #982624 dated XXXXXXXXXX, 1998. Canco did not begin to teach any courses, nor did it receive any tuition or application fees.
PROPOSED TRANSACTIONS
16. Universityco will assume all current contracts of Canco including employment contracts and leases and will obtain the appropriate registrations including registration pursuant to the XXXXXXXXXX. Universityco expects that it could start processing applications and application fees for its XXXXXXXXXX on or soon after the advance income tax ruling is issued and that it should be in a position to start teaching courses on or about XXXXXXXXXX. However, Universityco will not start receiving application fees or tuition fees or any other fees or start teaching courses in XXXXXXXXXX until it is registered and has complied with the XXXXXXXXXX.
17. Universityco also wishes to open offices and campuses in XXXXXXXXXX. However, no office or campus will be opened in a particular province until Universityco has complied with the relevant provincial legislation.
18. The operations of Universityco in Canada 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
19. In the future, as market need warrants, Universityco 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 or older. Undergraduates must be at least 23 years of age, have at least two years of 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.
20. Upon completion of the required course, degrees will be granted by Universityco.
21. Each Canadian campus will carry on operations for the purpose of offering in Canada, university-level degree programs created specifically to serve the needs of the working adult population in the relevant area. Each Canadian campus’ teaching/learning model and administrative services will be designed around the unique needs and characteristics of the working adult population.
22. Universityco will be required to hire, for each of its campuses, at a minimum, approximately the same number of staff, to fill the same types of positions, as have been currently hired by Canco. The employees of Canco will become employees of Universityco. In addition, Universityco will eventually employ a small cadre of full-time faculty members, at each campus, 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 Universityco (i.e. working adults), the ranks of the Canadian campuses’ 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 Universityco faculty. All practitioner-faculty at the various campuses will be hired from the professional population in the surrounding areas.
23. 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. Canadian campuses will utilize courses created by Universityco, and Canadian 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 Canadian faculty member who will make recommendations for adaptations that should be made to localize the course in 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 Universityco, Canadian textbook editions will be adopted wherever they are available. Canadian faculty members will also be part of the centralized process for establishing the course requirements for a particular degree.
24 Universityco 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 if and when Universityco becomes operational in XXXXXXXXXX.
25. All tuition fees will be paid to Universityco.
26. It is currently anticipated that Universityco will start advertising in XXXXXXXXXX on or about XXXXXXXXXX, and that it will be in a position to start receiving applications and application fees on or about XXXXXXXXXX, and teaching courses on or about XXXXXXXXXX. However, Universityco will not commence teaching courses or receive any application fees, tuition fees or any other fees in a particular province until it has registered and complied with the relevant provincial legislation in that particular province.
PURPOSE OF PROPOSED TRANSACTIONS
27. The purpose of the proposed transactions is to establish Universityco as a post-secondary educational institution in Canada though which students who reside and are employed on a full-time basis in Canada are able to access a learning environment that provides programs containing knowledge and skills with immediate practical value while continuing to meet their personal and professional responsibilities. Universityco believes that there is a demand for such an institution in Canada which must both be close in proximity to the student population and engage local professionals in the development and instruction of its courses.
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 Universityco registers and complies with the relevant provincial legislation, our rulings are as follows:
1. Universityco will qualify as an educational institution in Canada for the purposes of paragraph 118.5(1)(a) of the Act.
2. Universityco 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 at the Canadian campus of Universityco, 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 Universityco, 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.
4. Universityco will be considered to carry on a business in Canada for purposes of subsection 2(3) of the Act.
5. Universityco will be considered to carry on business in Canada through a “permanent establishment” for the purposes of Article VII of the Canada - U.S. Income Tax Convention.
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 Universityco 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) Universityco is a “designated educational 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;
(b) an individual enrolled in Universityco may deduct the education tax credit pursuant to subsection 118.6(2) of the Act for a taxation year; or
(c) subsection 105(1) of the Income Tax Regulations will apply with respect to tuition and other fees paid by Canadian residents to Universityco.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1998
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