Section 118.9

The taxpayer, who was an Ontario resident, paid taxes in Quebec as a result of his professional firm carrying on a portion of its practice through Quebec office(s). The ARQ reassessed to reduce to nil his claim for tuition credits that had been transferred to him by his daughter (also an Ontario resident) who was studying at a university in Scotland, and who was a resident of Ontario and did not carry on business in Quebec. In its decision, the ARQ stated that “as the Plaintiff’s daughter is not subject to Quebec income tax, she is not entitled to the applicable tax credit, and as such cannot transfer it to the Plaintiff”.

Before confirming the ARQ view (and reversing the decision below), the Court noted that the daughter was not subject to Quebec income tax, referred to the Oceanspan decision as being “particularly illuminating” (para. 44, TaxInterpretations translation), and further stated (at para. 45):

The Oceanspan decision was recently cited … in the Marino decision. Mr. Marino immigrated to Canada in 2012. The Federal Court [i.e., Tax Court] refused to apply a tax credit, for tuition fees paid during the years 2002 to 2011, when Mr. Marino was studying in the United States, to the 2013 year. The Federal Court ruled that the term "taxation year" was not applicable to the years 2002 to 2011, based on the interpretation adopted by the Federal Court of Appeal in Oceanspan. It held that the term "individual" in the ITA refers only to "those individuals who are captured by Part I of the Act in the taxation year and thus are capable of computing tax payable under Part I for the taxation year.”

The taxpayer, who was an Ontario resident, paid taxes in several provinces including Quebec as a result of his professional firm’s business activities. The ARQ reassessed to reduce to nil his claim for tuition credits that had been transferred to him by his daughter (also an Ontario resident) who was studying at a university in Scotland. The Quebec transfer provision required that she file a Quebec return, and she ultimately filed a nil return (she had no Quebec sources of income). In its decision, the ARQ stated that “as the Plaintiff’s daughter is not subject to Quebec income tax, she is not entitled to the applicable tax credit, and as such cannot transfer it to the Plaintiff”.

Cameron JCQ stated (at para 40):

The legislation does not suggest that in any year where a Quebec resident who is a student does not have liability for tax pursuant to articles 22 or 25 TA, she would not be able to transfer the unusable credit to a parent. To interpret the law as implying that would be a direct contradiction of the purpose of the legislation, that of permitting a taxpaying parent to reduce tax liability because of the support of the child for education.

He went on to indicate (at para. 49) that in any event, the daughter could be considered to be “subject to tax”:

… The income tax legislation … applies to all Canadian residents … because they may, in one year or another, earn business income in Quebec… . In that sense, the daughter is “subject to the tax” to use Revenu Québec’s phrase, because she could, potentially, depending on circumstances, get some business income generated in Quebec even without being a resident here.

Before cancelling the reassessments, Cameron JCQ stated (at para 57):

…On a direct reading of the text, giving the words their ordinary meaning, … the fact that the student does or does not have to pay a tax in a given year does not have a bearing on the option of the parent using the credit. The Court reaches the same conclusion on a reading of the text in light of its purpose, that is reflective of the policy objective in play, that of encouraging persons who pay taxes in Quebec to support their children in their studies… . In that light, a generous interpretation should be given, … and the Court should not read in restrictions that are not to be found in the legislator’s choice of the words used and those not used.