Foreign education tax breaks have limits

National Post


When it comes to claiming a tax break for post-secondary level education, you may be surprised to learn not all educational institutions are created equal - at least in the eyes of the Canada Revenue Agency.

Student Jessica Yakubowicz learned this lesson the hard way when she tried to claim tuition, education and textbook tax credits for post-graduate level studies in art business that she took at Sotheby's Institute of Art in New York City in 2006/2007. With tuition fees at the institute running in excess of US$50,000 for the year, losing the tax benefit is a painful blow.

The problem? When Ms. Yakubowicz attended the institute, it did not have degree-granting powers. While Sotheby's Institute was listed in the U.S. Department of Education Database of Accredited Postsecondary Institutions and Programs, it was not identified as a degree-granting institution until last year, when it was granted such powers by the New York State Education Department.

In 2006 and 2007, the years in which she attended, the institute had an agreement with the University of Manchester that Sotheby's Institute credits, together with a thesis to be completed under the supervision of Sotheby's Institute of Art in London, would be recognized by the University of Manchester and would ultimately qualify a student for a Masters of Arts degree in art business granted by the University of Manchester.

That's exactly what she did, earning her MA in art business from the University of Manchester. But this was insufficient for her to claim her tax credits because under the Income Tax Act, the tuition credit for studies outside Canada is available only "in respect of tuition paid to a university outside Canada." This differs from the rule governing the tuition credit for studies in Canada, available for tuition paid for attendance "at colleges or other post-secondary institutions."

While the term "university" in not specifically defined in the Tax Act, a judge in an earlier case ruled, "the expression university outside Canada' refers to an educational institution which confers degrees usually granted by universities, that is a doctorate degree, a master degree or, at minimum, degrees at the baccalaureate level or its equivalent."

In Ms. Yakubowicz' case, the judge concluded that when she paid her tuition to Sotheby's Institute for the 2006/2007 school year, the institute was simply not a university as defined by prior jurisprudence.

Since the education credit is available only for study periods outside of Canada at universities and the institute was not considered to be a university, this credit was also denied. To add insult to injury, the relatively newer textbook tax credit was also denied since it's available only if the education credit is available - a harsh lesson for Ms. Yakubowicz and an important one for the rest of us.