US flag, blue graduation cap and diploma on old books

If any your clients have children who are returning to postsecondary education this September but are studying outside of Canada, perhaps in a U.S. college or university, a recent Tax Court of Canada decision may be of significant interest.

The case involved the student’s eligibility for the tuition tax credit for foreign studies taken during a somewhat uniquely structured summer semester. To recap the general rule, 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 use by the student in a future year.

The postsecondary studies need not be in Canada to qualify for the tuition tax credit. Under the Income Tax Act, students can claim the tuition tax credit for postsecondary 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 tax credit for her tuition fees during the summer months while doing her master’s of business administration (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 following her graduation from an undergraduate program. The one-year MBA program is comprised of three semesters: summer, autumn and spring — each consisting of approximately 17 credits.

The summer session includes 10 consecutive courses, each of which is of one or two weeks’ duration, or 27.5 hours a week from Monday to Friday. Almost all of the courses are compulsory and are described as “required core courses.” These courses are essentially the same as those offered during the autumn and spring semesters of the first year of the conventional two-year MBA program.

The student claimed a tuition tax credit for $47,918 (all amounts converted to Canadian dollars) on her 2014 tax return, consisting of $21,577 for the summer semester and $26,341 for the autumn semester. The Canada Revenue Agency (CRA), following a strict and literal interpretation of the law, reassessed the student and denied her 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 10 separate courses of one or two weeks’ duration, each coded separately with different professors or instructors.

The question before the Tax Court was whether the three-week minimum duration requirement in the Income 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?

The CRA’s position was that “the word ‘course’ must be construed narrowly as referring to a single course on a particular subject.” The taxpayer argued that the summer semester is an integral part of the one-year program and that all courses were compulsory and attendance was mandatory. Thus, for her to pick and choose, or to register for individual courses, simply was not possible. She registered once and paid one fee for the entire summer semester.

Fortunately, the judge allowed the tuition tax credit, concluding 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 10 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 of the student’s summer courses were taken consecutively over a 10-week semester, which satisfied the minimum three-week course duration requirement.