Principal Issues: Where students enrolled in a correspondence course have the option to purchase or not to purchase textbooks, will the cost of same be eligible for the tuition tax credit?
Position: Likely not eligible for the tuition tax credit but effective 2006, the student may be eligible for the textbook credit.
Reasons: Although normally not eligible for the tuition tax credit, where the cost of textbooks, CDs or similar materials is included in the tuition cost for a correspondence course offered by a designated educational institution, such amount will qualify for the tuition tax credit provided all other requirements are also met.
Effective 2006 the new "textbook tax credit" will provide a credit for students enrolled in programs qualifying them for the education tax credit, with a textbook credit calculated as a flat amount per month of full-time or part-time enrolment.
2006-021512 XXXXXXXXXX Renée Shields (613) 948-5273 November 28, 2006
Dear XXXXXXXXXX:
Re: Tuition tax credit
This is in response to your electronic correspondence of November 17, 2006 inquiring about the eligibility of the cost of textbooks for the tuition tax credit. In particular you have described a situation in which students enrolled in a correspondence program at your institution have an option whether or not to purchase the textbooks used for the program. You have asked whether those students who choose to purchase the books can include the cost in the amount eligible for the tuition tax credit.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings." Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the Canada Revenue Agency ("CRA") website at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
The CRA's views regarding the tuition tax credit are contained in Interpretation Bulletin IT-516R2, "Tuition Tax Credit." At ¶28 of the Bulletin we state:
Although the cost of books, cassettes, videotapes or compact disks (CDs) ordinarily does not come within the meaning of tuition fees, an exception is made when the student is enrolled in a correspondence course given by an eligible educational institution in Canada (see 2 above) and the cost of the books, cassettes, videotapes or CDs which form part of the course is included in the fees paid for the course.
It is our view that in the scenario you have described, because the cost of books is not included in the tuition for the course, such cost does not fit within the exception described above. As a result, a student who chooses to purchase textbooks for use in the correspondence course would not be able to include the cost in the amount eligible for the tuition tax credit.
However, as mentioned during our conversation on November 27, 2006 (XXXXXXXXXX/Shields), the May 2006 federal budget included a proposal to establish a textbook tax credit to take effect in the 2006 taxation year. In October 2006, Bill C-28 was tabled, which included (among other things) draft legislation to implement this credit. If the Bill is passed, the Income Tax Act will be amended to provide that students who qualify for the education tax credit will be eligible for a textbook tax credit.
The draft legislation provides that the textbook tax credit for a taxation year is equal to the product obtained when the appropriate percentage for the taxation year (which corresponds to the lowest marginal personal tax rate for the year) is multiplied by $65 for each month in the taxation year in which the individual was entitled to claim the education tax credit as a full-time student or $20 for each month in the taxation year in which the individual was entitled to claim the education tax credit as a part-time student.
We trust these comments will be of assistance.
Yours truly,
For/Mickey Sarazin, CA
Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch