| 19(1) | 920961 |
| M. Eisner | |
| (613) 957-2138 |
May 28, 1992
Dear Sir:
Re: Tuition Fee Tax Credit
This is in reply to your letter of March 16, 1992 concerning the tax treatment of tuition fees. At the outset, we wish to mention that this Department is responsible for administering and enforcing the Income Tax Act. These functions must be carried out in a fair and an impartial manner which is in accord with the relevant income tax laws. The Department of Finance on the other hand is responsible for amendments to the Income Tax act. 19(1)
In that regard, an individual, prior to 1988, was entitled to deduct eligible tuition fees in the year they were paid. For 1988 and subsequent years, the rules on tuition fees were amended to convert the deduction to a tax credit. In addition, the Department of Finance considered it appropriate to amend the rules so that a tax credit for eligible fees could only be claimed in respect of the year to which they relate.
Therefore, since the course you took only began in 1992 (and we assume was completed in 1992), the fees you paid in November of 1991 will be eligible for a tax credit when you file your 1992 tax return.You have also indicated that the above result is contrary to the treatment for other types of expenses under the Income Tax Act as they are taken into account in the year they are paid. In particular, you have referred to medical expenses.
With respect to those comments, we are first mentioning that in the case of certain types of expenditures (e.g., medical expenses and charitable donations), there are special rules which may permit a taxpayer to take them into account in preparing his or her tax return for a year that is subsequent to that in which they are paid. In addition, there are restrictions on some types of expenditures (e.g. the 20% net income limitation in respect of charitable donations). However, notwithstanding these points, for expenditures such as charitable donations, medical expenses, and union dues, the Income Tax Act requires that they be paid prior to the end of the year in question before they can be deducted or taken into account in computing a tax credit for that year. While tuition fees must also be paid before a tax credit can be claimed, there is the additional requirement that the fees be related to the particular year involved. Consequently, a tax credit cannot be allowed solely on the basis that tuition fees were paid in a particular year.
You have also referred to the rule under which an individual's qualifying medical expenses must be reduced by the lesser of $1500 (as indexed) or 3% of the individual's income for the year. In relation to this rule, we wish to note that as indicated above, it is possible for qualifying medical expenses to be taken account in computing the related tax credit in a year subsequent to that in which they are paid as such expenses can be used for any 12 month period ending in a particular year. However, the same expense cannot be claimed twice. An individual may be able to benefit from this 12 month rule where an unusually large amount of such expenses are paid within a 12 month time frame that straddles two taxation years.
You have also mentioned a number of other points concerning the tuition fee tax credit which you believe penalizes an individual wishing to further his education. In this regard, you have mentioned that the goods and services tax now applies to tuition fees and that if tuition fees paid to an educational institution in respect of a particular year are $100 or less, the fees are not eligible for a tax credit. You have also referred to the fact that a tuition receipt must be attached to a tax return before a tax credit can be claimed. However, in the case of other types of expenses (e.g. travelling and auto expenses), it is questionable whether expenses claimed are deductible under the Act because no receipts are required to be attached to the return.
While receipts for certain expenses are not required to be filed with a tax return, such receipts must be maintained by taxpayers for verification by this Department for the purposes of determining whether the related expenses are deductible pursuant to the Income Tax Act. In relation to the other comments in the preceding paragraph as well as your comments on the tax treatment on tuition fees, an amendment to the Income Tax Act (or the Excise Tax Act in the case of the goods and services tax) would be required in order to achieve the results you have suggested. Similarly, an amendment to the Income Tax Act would be required if medical expenses are to be taken into account in the year the service is rendered rather than requiring payment. Should you wish to pursue these matters, you should make a submission to the Department of Finance. The address of that Department is set out below:
Department of Finance140 O'Connor St.Ottawa, OntarioK1A OG5
We wish to thank you for taking the time to provide us with your views. While we regret that we could not provide you with a favourable reply, we hope that the foregoing comments are of assistance to you.
Yours truly,
P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
cc: Calgary District Office