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:
(1) Do the fees paid by students for food supplies used in courses for the chef program qualify as ancillary tuition fees pursuant to subsection 118.5(3) of the Income Tax Act ?
(2) Does any part of the payments (deposit and periodic lease payments) made by a student under the mandatory textbook leasing program of XXXXXXXXXX qualify as ancillary tuition fee pursuant to subsection 118.5(3) of the Act?
(3) Is the entrance scholarship, which XXXXXXXXXX awards a student out of its operating funds and directly applies against the student’s liability for tuition fees, to be treated as income of the student pursuant to paragraph 56(1)(n) of the Act or as a reduction of the student’s tuition fees?
Position:
(1) Yes
(2) Depends.
(3) The entrance scholarship constitutes paragraph 56(n) income and does not reduce the tuition fees.
Reasons:
(1) Supplies consumed in the chef program would qualify as ancillary tuition fees. None of the exceptions in the subsection 118.5(3) of the Act are applicable.
(2) If the student keeps the books and forfeits the deposit, neither the deposit nor the periodic lease payments qualify as ancillary tuition fees because such amounts are in respect of property to be acquired by the student (subparagraph 118.5(3)(c)(ii)). However, if the student returns the books and gets a refund of the deposit, the lease payments qualify as ancillary tuition fees; although in this situation it could be argued that the lease payments are not ancillary tuition fees because they can be considered as being in respect of services not ordinarily provided at educational institutions in Canada that offer courses at a post-secondary school level, it is felt that, with informal support from the Department of Finance, this exception in subparagraph 118.5(3)(c)(iii) is not meant to apply to books which are, generally speaking, an integral part of the instruction and education process.
(3) As indicated in paragraph 17 of IT-516R2, tuition fees can include fees paid out of prizes, scholarships, fellowships and bursaries. The entrance scholarship is to be included in income, pursuant to paragraph 56(1)(n) of the Act, as explained in IT-75R3.
April 6, 1999
XXXXXXXXXX Tax Services Office HEADQUARTERS
Director S. Parnanzone
(613) 957-9232
Attention: XXXXXXXXXX
990159
Tuition Fees
This is in reply to your memorandum of January 21, 1999, concerning the tax treatment of food supplies used in courses to become a chef, lease payments under a mandatory textbook leasing program, and entrance scholarships.
Case 1
All students attending the XXXXXXXXXX are assessed a fee of between $XXXXXXXXXX and $XXXXXXXXXX for food supplies used in a chef program. The amount of the fee varies depending on the actual program the student is registered in. For example, the fee for a pastry chef student is higher than that assessed a regular chef student.
At issue is whether a student’s fee for food supplies qualifies as an ancillary tuition fee or, to use the technical language, as an ancillary fee to be included in the fees for an individual’s tuition within the meaning of this expression in subsection 118.5(3) of the Income Tax Act (the “Act”).
Case 2
XXXXXXXXXX has a mandatory textbook leasing program. Students pay a deposit of 2/3 of the value of their books and make lease payments for the balance of the books’ value. At the end of the course, the students have the option either of forfeiting the deposit and keeping the books or of returning the books in good condition and getting a refund of the deposit.
At issue is whether any part of the payments made by a student under the mandatory textbook leasing program qualifies as an ancillary tuition fee pursuant to subsection 118.5(3) of the Act.
Case 3
When XXXXXXXXXX awards a student an entrance scholarship out of its operating funds, it applies the scholarship directly to reduce the student’s liability for tuition fees. XXXXXXXXXX has a separate trust or foundation that also awards scholarships.
At issue is whether the entrance scholarship awarded by XXXXXXXXXX out of its operating funds is to be treated as income of the student pursuant to paragraph 56(1)(n) of the Act or as a reduction of the tuition fees.
Case 1
The fees that the students pay for food supplies qualify as ancillary tuition fees pursuant to subsection 118.5(3) of the Act.
Case 2
The Department’s position on tuition fees is set out in Interpretation Bulletin IT-516R2. As explained in paragraph 28 of the bulletin, the cost of books ordinarily does not come within the meaning of tuition fees, except in the case of a student enrolled in a correspondence course given by an eligible educational institution in Canada and the cost of books is included as part of the fees paid for the course. Accordingly, the question is to what extent the bulletin’s position concerning the cost of books still applies with respect to the mandatory textbook leasing program of XXXXXXXXXX given the recent tax amendment concerning ancillary tuition fees.
The recent amendment to subsection 118.5(3) of the Act generally provides that ancillary fees may qualify as tuition fees subject to certain restrictions. One such restriction is that fees are not considered to be ancillary tuition fees if they are paid in respect of property to be acquired by the student (subparagraph 118.5(3)(c)(ii)).
In our opinion, in the situation in which the student keeps the books and forfeits the deposit under the mandatory textbook leasing program of XXXXXXXXXX , both the deposit and the lease payments would not qualify as ancillary tuition fees under the tax amendment because they are in respect of property to be acquired by the student.
On the other hand, it is our opinion that the lease payments under a mandatory textbook leasing program similar to that of XXXXXXXXXX may qualify as ancillary tuition fees pursuant to subsection 118.5(3) of the Act if the student returns the books for a refund of the deposit, provided that the lease arrangement is reasonable. In our view, a textbook lease arrangement involving lease payments in respect of 1/3 of the value of the textbooks would be reasonable and, accordingly, the lease payments would be considered ancillary tuition fees.
Case 3
As indicated in paragraph 17 of IT-516R2, tuition fees can include fees paid out of prizes, scholarships, fellowships and bursaries. Accordingly, to the extent that XXXXXXXXXX liability for an entrance scholarship awarded a student is offset against the student’s liability for the tuition fees, the amount of tuition fees eligible for the tuition tax credit consists of the full amount of tuition fees assessed, without any reduction for the entrance scholarship. However, subject to the $500 exemption, the entrance scholarship is to be included in income, pursuant to paragraph 56(1)(n) of the Act, as explained in IT-75R3.
We would mention that if XXXXXXXXXX provides a student with “free” tuition in the circumstances explained in paragraph 16 of IT-516R2, the student is not considered to have paid any tuition fees eligible for the tuition tax credit. However, if the value of the “free” tuition has been included in the income of the student or a member of the student’s family as a benefit from employment, the student may claim a tuition tax credit for the value of the tuition.
We trust that you will find the above comments of some assistance.
Your truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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