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.
Principal Issues: Whether the unused tuition tax credit is available to a student who is either bankupt or insolvent.
Position: 1. The unused tuition tax credit is not available to a student who is bankrupt; but it is available to a trustee when filing an in-bankruptcy return.
2. The unused tuition tax credit is available to a student who is insolvent.
Reasons: 1. Paragraphs 128(2)(a), (e), (f), and (g).
2. Section 128 only applies to bankruptcies.
XXXXXXXXXX
2010-037986
Lindsay Frank
Attention: XXXXXXXXXX
September 15, 2010
Dear XXXXXXXXXX :
Re: Unused Tuition Credits
This is in reply to your email of September 9, 2010. At issue is the application of the unused tuition tax credit when a taxpayer is bankrupt or has filed a proposal under the Bankruptcy and Insolvency Act ("BIA").
Section 118.61 of the Income Tax Act (the "Act") permits a student to carry forward any unused tuition tax credit, to the extent that it has not been transferred to a spouse or a supporting individual. However, as explained below, section 118.61 does not apply to a bankrupt student; but it applies to a trustee in bankruptcy ("trustee"). On the other hand, a student, who has filed a proposal under the BIA, may avail himself or herself of the provision. The distinction being that a proponent is not a bankrupt.
On the bankruptcy of a taxpayer, paragraph 128(2)(a) of the Act deems a trustee to be the bankrupt's agent for all purposes of taxation. Paragraph 128(2)(e) requires the trustee to file an in-bankruptcy return to report income arising from any dealing in the bankrupt estate, or any act performed in the carrying on of its business. In computing tax payable for that return the trustee may claim the unused tuition tax credit.
Paragraph 128(2)(f) requires a taxpayer, while bankrupt, to file a return of income. However, when computing tax payable, subparagraph 128(2)(f)(iv) provides that that taxpayer cannot claim the unused tuition tax credit. Furthermore, under subparagraph 128(2)(g)(iii), the taxpayer cannot carry forward the credit, after receiving an absolute discharge from bankruptcy, see Delisle v. The Queen, 2006 D.T.C. 3002 (T.C.C.).
Section 128 makes specific reference to bankruptcy, and Parliament did not provide that reference should be made to other provisions of the BIA. In other words, section 128 only applies to bankruptcies, see Marchessault v. The Queen, [2008] 3 C.T.C. 319 (F.C.A.), rev'g [2006] 5 C.T.C. 2481 (T.C.C.). Accordingly, as indicated earlier, a student, who has filed a proposal under the BIA, may avail himself or herself of section 118.61 and carry forward any unused tuition tax credit, but only to the extent that the credit has not been transferred to a spouse or a supporting individual.
Should you have any questions or require clarification, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate
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