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) Does the annual charge, automatically levied as part of the tuition fees and kept in a fund administered by a registered charity run by the student association for the purpose of financing the acquisition of library books, qualify as ancillary tuition fee per subsection 118.5(3) of the Income Tax Act?
(2) (a) Does the annual charge automatically levied as part of tuition fees by and educational institution which is a registered charity qualify as a gift in respect of which an official receipt can be issued ?
(b) If the educational institution transfers the annual charge to a qualified donee (another registered charity) pursuant to an “understanding”, does the transfer qualify as a gift for purposes of the disbursement quota?
Position:
(1) Maybe
(2) (a) No
(b) No
Reasons:
(1) Although arguably the annual charge is not an ancillary tuition fee because it is paid “in respect of” (Nowegijick 83DTC5041 at 5045) a student association (subparagraph 118.5(3)(c)(i)), nevertheless it possibly may qualify as ancillary tuition fee, depending on the specific circumstances of the case, because its purpose is to acquire library books, the members of the student association do not derive any personal benefit (except for the use of library books) from it, and the arrangement is not contrary to tax policy according to an informal opinion from Finance.
(2) (a) The annual charge is most likely not a gift because it is not voluntary (i.e., with no obligation, contractual, moral or otherwise) due to the automatic nature of the arrangement and, arguably, because it would be paid with the expectation or anticipation of consideration (education). No official receipt (Reg. XXXV) may be issued.
(b) The transfer is not a gift if, based on the specific facts of the case, the “understanding” between the payor educational institution and the recipient qualified donee can be regarded as an obligation such that the transfer is not voluntary, as indicated above.
XXXXXXXXXX 990198
S. Parnanzone
April 19 , 1999
Dear XXXXXXXXXX:
Re : Tuition Fees and Gifts
We are replying to your letter of January 21, 1999, concerning the tax treatment of certain annual charges paid by students in the two scenarios described below.
Scenario One
An educational institution described in subparagraph 118.5(1)(a)(i) of the Income Tax Act (the “Act”) levies on students a mandatory annual charge of a nominal amount which is included in the invoice for tuition fees. The annual charge is maintained on an endowment basis in a fund administered by a registered charity run by the institution’s student association. The income of the fund is used to purchase books for the library of the educational institution.
Your question concerns whether the annual charge constitutes an ancillary tuition fee or, to use the technical language, an ancillary fee or charge to be included in the fees for an individual’s tuition within the meaning of this expression in subsection 118.5(3) of the Act.
Scenario Two
An educational institution, which is a registered charity, automatically levies on students an annual charge of a nominal amount, which is included in the invoice for tuition fees. The annual charge is transferred to another registered charity, which is a qualified donee within the meaning of this term in subsection 149.1(1) of the Act. Students may opt out of paying the annual charge by completing a form at a central office. You note that the students pay the annual charge with the “understanding” that it is transferred to a qualified donee. You also state that the annual charge is in fact transferred to the qualified donee in accordance with an ”understanding” between it and the educational institution and that the educational institution issues charitable donation receipts to the students who pay the annual charge.
Your first question concerns whether, given the automatic nature of the arrangement, the annual charge constitutes a “gift” that can be included as part of the student’s total charitable gifts as this expression is defined in subsection 118.1(1) of the Act.
Your second question is phrased as follows:
As the donation is given with the understanding that it will ultimately be received by the qualified donee, can the educational institution issue a charitable donation receipt to the student and treat the amount transferred to the qualified donee as a gift to a qualified donee in accordance with paragraph 149.1(2)(b).
It would appear that the matters you have raised concern actual transactions. As indicated in Information Circular 70-6R3, our Directorate provides binding advance income tax rulings in respect of proposed transactions, while the Department’s field tax offices provide written opinions in respect of completed transactions. Nevertheless, we are prepared to offer the following general comments, which are not binding.
Scenario One
Pursuant to subparagraph 118.5(3)(c)(i) of the Act , any fee or charge paid to an educational institution in respect of an individual’s enrolment at the institution in a program at a post-secondary school level does not qualify as ancillary tuition fees to the extent that it is levied in respect of a student association. The phrase in respect of is of the widest possible scope and “is probably the widest of any expression intended to convey some connection between two related subject matters” ( Nowegijick 83DTC5041 at 5045). Accordingly, any annual fee or charge under the control of a student association may, strictly speaking, be excluded from qualifying as an ancillary tuition fee. Due to the limited amount of facts, we are unable to express an opinion as to whether this strict interpretation should be adopted, considering that the purpose of the annual charge is to acquire library books.
Scenario Two
The Department’s position concerning the meaning of “gift” for tax purposes is set out in paragraph 3 of Interpretation Bulletin IT-110R3. A transfer of property is considered to be a gift if certain conditions are satisfied. One such condition is that the transfer must be voluntary. Any obligation, contractual, moral or otherwise, on the donor would cause the transfer to lose its status as a gift. In order to be a gift, the transfer of property must be made without conditions, from a detached and disinterested generosity, out of affection, respect, charity or like impulse, and not made from the constraining forces of any moral or legal duty.
Another condition that must be satisfied is that the transfer is made without expectation of return or consideration. A transfer of property made with the expectation that education be provided to the donor or anyone designated by the donor would arguably not qualify as a gift. With respect to situations in which part of the amounts paid to certain schools may qualify as a gift, please refer to Information Circular 75-23, Tuition fees and charitable donations paid to privately supported schools and religious schools.
It is a question of fact whether in a particular situation a transfer of property is voluntary and does not involve the expectation of consideration. In the scenario you described, the relationship between the educational institution and the student is such that the conditions for a gift mentioned above may not likely be satisfied. In fact, the student may be paying the annual charge likely in the expectation of receiving a return (i.e., education) and, much more likely, under an obligation of some sort to support the educational institution by which the student was accepted for studies. Also, the annual charge is likely not a gift because of the obligation/condition reflected in the “understanding” that it is to be paid to the qualified donee by the educational institution. In short, in our view, the annual charge would very likely not qualify as a gift.
As regards your second question, it is made up of two parts. The first part is whether the educational institution, a registered charity, can issue a charitable donation receipt for the annual charge. If the annual charge cannot be considered a gift for tax purposes, based on all of the facts and as explained above, no official receipt , as this term is defined in Part XXXV of the Income Tax Regulations, can be issued for it.
The second part of your question is whether the amount transferred by the educational institution to the qualified donee can be treated as a gift for purposes of the disbursement quota as referred to in paragraph 149.1(2)(b) of the Act. For the reasons expressed above, a transfer of property does not qualify as a gift if it is not voluntary. Depending on the actual facts, which were not made available to us, the “understanding” between the educational institution and the qualified donee may constitute an obligation of some sort sufficient to disqualify the transfer of property from being a gift.
In closing, due to the nature of your enquiries, it is difficult to provide definitive comments without having the opportunity to review all the relevant facts, and more particularly, the relevant documentation. In the event your enquiry relates to a contemplated transaction, we would be glad to review the matter in more detail if it is received in the form of a request for an advance income tax ruling. Of course, all relevant documentation and agreements must be submitted with such a request.
We trust that the forgoing comments are of assistance to you.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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