While some of us may fritter away the lazy months of summer sipping frosted mojitos by the lakeside dock, others are more industrious, spending the time in frigid, windowless classrooms, trying to collect some extra credits.
If you, or someone close to you, is a post-secondary student who is studying outside of Canada, then you may be interested in a recent decision of the Tax Court late last month involving eligibility for the tuition tax credit for foreign studies taken during the somewhat uniquely structured summer semester.
Post-secondary students can claim non-refundable federal and provincial credits for the cost of tuition fees paid, with no limit, for post-secondary level education. (Tax credits for education and textbook amounts were discontinued as of 2017.) If the student does not have sufficient income to use the credits in the year of attendance, up to $5,000 can be claimed by the student's spouse or partner, or supporting parent or grandparent. Any remaining amount can be carried forward for used by the student in a future year.
The postsecondary studies need not be in Canada to qualify for the tuition credit. Under the Income Tax Act, a student can claim the tuition credit for post-secondary studies abroad if they are "in full-time attendance at a university outside Canada in a course leading to a degree ... except ... a course of less than three consecutive weeks duration." Note that there is no minimum duration requirement when the program is taken at a Canadian school.
The recent tax case involved a Canadian student who tried to claim a tuition credit for her tuition fees during the summer months while doing her MBA at the University of Notre Dame, in Indiana.
Notre Dame offers the traditional two-year MBA program as well as an accelerated one-year program. The latter program is intended for students who have already completed an undergraduate degree in business or have certain prerequisites.
The student enrolled in the one-year program from May 2014 to May 2015, when she graduated. The one-year program is comprised of three semesters: summer, fall and spring, each consisting of approximately 17 credits.
The summer session includes ten consecutive courses, each of which is of one or two weeks' duration or 27.5 hours per week from Monday to Friday. Nearly all of the courses are compulsory and are described as "Required Core Courses." These courses are essentially the same as those offered during the fall and spring semesters of the first year of the conventional two-year MBA program.
On her 2014 tax return, the student claimed a tuition credit for $47,918 (all amounts converted to Canadian dollars), consisting of $21,577 for the summer semester and $26,341 for the fall semester. The Canada Revenue Agency, following a strict and literal interpretation of the law, reassessed her, denying the $21,577 she paid for the summer semester. The CRA's position was that the taxpayer was not entitled to the tuition tax credit for her summer tuition since it consisted of ten separate courses of one or two weeks duration, each separately coded with different professors or instructors.
The question before the Tax Court was whether the three week minimum duration requirement in the Tax Act is to be applied to each individual course within a program of studies or does it refer to the entire program of study? Over the years, there have been conflicting court decisions as to the meaning that should be given to the word "course" in the Act.
The CRA's position was that "the word 'course' must be narrowly construed as referring to a single course on a particular subject." Indeed, the taxpayer admitted that the courses are all separately coded and have different instructors which might support an interpretation based on the "ordinary meaning" of the word.
The taxpayer argued that the summer semester is an integral part of the one-year program and that all courses are compulsory and attendance mandatory. It was simply not possible for her to pick and choose or to register for individual courses. She registered once and paid one fee for the entire summer semester.
In other words, the summer semester, though composed of one and two week courses, should be viewed as a program of courses held over ten consecutive weeks. She contended that had the same courses been followed simultaneously during the first year of the two year program, there would be no issue as to her entitlement to the tuition tax credit.
The judge felt that, based on the prior jurisprudence, the word "course," in the context of the tuition credit, can support more than one reasonable meaning. In such a case, the judge must consider, in the words of the Supreme Court, "a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole."
The judge found that there was "clearly no doubt" that the taxpayer was in full-time attendance during the summer semester, taking courses that led to a degree. Attendance at all ten courses was mandatory and the taxpayer was not entitled to pick and choose her courses - all courses were "part and parcel of the summer semester," for which she registered and paid a single fee. All her summer courses were taken consecutively over a ten week semester, which satisfied the minimum three-week course duration requirement.
As a result, the judge ruled that the "the tuition fee paid by the (taxpayer) in respect of the summer semester meets the requirements of... the Act," and allowed the student's tuition credit.