Path to Bachelor’s Degree Required for Out-of-Country Tuition Tax Credits

The Tax Court of Canada (TCC) recently had to decide whether a taxpayer who attended a “university outside Canada” qualified to claim the tuition fee tax credit, under paragraph 118.5(1)(b) of the Income Tax Act (the Act).

In this case, the appellant participated in the audio engineering program at the Musicians Institute in 2011. That program does not lead to a bachelor’s degree; rather, it leads to a certificate.

The Musician’s Institute does offer bachelor degrees in composition and performance, but the audio engineering program does not contribute to either of those. The appellant was allowed the same tuition tax credits for 2012 and argued that the Minister of National Revenue is obliged to apply the law consistently; therefore, he argued, such tuition credits for 2011 ought to have been granted as well. The Honourable Justice E.P. Rossiter dealt with the issue of the appellant’s 2012 tax year very quickly and easily. He simply stated that the Minister’s treatment of the appellant’s 2012 taxation year had no bearing on the appeal before him.

The difficulty in interpreting this provision of the Act is that “degree” is not a defined term in the Act. It has previously been determined by the Federal Court of Appeal that “degree” means a bachelor’s degree (or higher) in the determination of whether an educational institute outside Canada is a university. Therefore, the question to be decided by the TCC in Zailo v. The Queen was whether “degree” means a bachelor’s degree (or higher) for determining whether an educational institute is a university, but includes associate’s degrees for determining which programs qualify for the tuition credit.

In this case at least two of the courses which the appellant would have to take in order to receive a bachelor of music in performance were part of the audio engineering program that he was enrolled in. Justice Rossiter questioned why courses leading to an associate’s degree, which could in fact be included as part of the qualification to a bachelor’s degree, should not be eligible for a tuition credit.

Unfortunately for the appellant, he testified that these courses were in fact used towards a certificate program and not towards a bachelor’s degree. What he discovered in the outcome of the case is that courses taken that could lead to a bachelor’s degree (or higher) at a university outside of Canada can be eligible for the tuition tax credit, but the student must, in fact, be on the path towards a bachelor’s degree and not a lesser designation.

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.