14 September 1999 External T.I. 9918415 - UNUSED TUITION & EDUCATION TAX CREDIT

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:

Clarification of the integration between section 118.61 (unused tuition and education tax credits), section 118.92 (ordering of credits) and section 121 (dividend tax credit). When there are both dividend tax credits (cannot be carried forward) and unused tuition and education tax credits (can be carried forward), the unused tuition and education tax credit amounts must be deducted first and the benefit of the dividend tax credit is lost as it cannot be carried forward.

Position TAKEN:

His interpretation is not correct.

Reasons FOR POSITION TAKEN:

118.61 is ordered ahead of 118.5 and 118.6. When the tax otherwise payable without considering 118.5 or 118.6 is nil, the whole of the tuition and education credits are carried forward. The 118.61 deduction pursuant to subsection (2) is nil and the carry forward is not otherwise reduced.

xxxxxxxxxx 5-991841
G. Moore
Attention: xxxxxxxxxx

September 14, 1999

Dear XXXXXXXXXX:

Re: Unused Tuition and Education Tax Credits - Section 118.61

This is in reply to your letter of June 17, 1999, regarding the interaction between sections 118.61 (unused tuition and education tax credits), 118.92 (ordering of credits) and 121 (dividend tax credit) of the Income Tax Act (the "Act")

You have described a situation where a taxpayer has taxable income in 1998 which includes dividends from taxable Canadian corporations. The taxpayer also has eligible tuition credits in that year which would be totally unused (i.e. it would form the individual's "unused tuition and education tax credits" ("tuition carryforward") at the end of 1998 in accordance with subsection 118.61(1) of the Act) as the dividend tax credits are in excess of the taxes otherwise payable. You are concerned that since section 118.92 of the Act requires the tuition tax credits to be applied before the dividend tax credit, the resultant tuition carryforward is lower and the dividend tax credit is lost.

Our Comments

We do not agree with your analysis. Pursuant to variable B of subsection 118.61(1) of the Act, the current year tuition tax credits are included in the computation of the tuition carryforward. Pursuant to variable C of subsection 118.61(1), the "lesser of the value of B and the amount that would be the individual's tax payable under this Part for the year if no amount were deductible under section 118.5 or 118.6" is subtracted from variable B in computing the tuition carryforward (underlining for emphasis). In your circumstances, due to a dividend tax credit, the individual's tax payable, for purposes of variable C, would be "nil". Accordingly, the full 1998 tuition tax credit (variable B) would be eligible to be carried forward. The ordering provision in section 118.92 of the Act does not override the computation of the tuition carryforward.

The same rationale applies to the deduction of the tuition carryforward pursuant to subsection 118.61(2) of the Act.

Paragraph 118.61(2)(b) of the Act requires a computation of the tax payable before the tuition tax credit but after the dividend tax credit.

We trust that these comments will be of assistance.

Yours truly,

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