|NO.:||IT-515R2||DATE:||December 9, 1996|
|SUBJECT:||INCOME TAX ACT
Education Tax Credit
|REFERENCE:||Section 118.6 (also sections 118.8 and 118.9, subsections 5(1), 6(3), and 117(2) and paragraph 56(1)(n))|
This bulletin cancels and replaces Interpretation Bulletin IT-515R dated March 25, 1994.
An individual may be entitled to claim an education tax credit, which is a non-refundable tax credit in calculating Part I tax otherwise payable. The purpose of the education tax credit is to assist a student by reducing the student's income tax by reference to the number of months that the student is enrolled in a qualifying educational program at a designated educational institution. The amount of the education tax credit is determined by multiplying the lowest personal tax rate percentage (17% since 1988) for the year by $80 and by the number of months in the year during which the individual was enrolled as a full-time student, or in some circumstances, as a part-time student, in a qualifying educational program at a designated educational institution. The student must obtain a certificate, issued by the educational institution, which documents the student's enrolment. When the student is enrolled at an institution certified by the Minister of Human Resources Development, the purpose of the enrolment must be to acquire or improve occupational skills. Any unused portion of the student's education tax credit may be transferred to the student's spouse or a parent or grandparent. See the Note following ¶ 2 below for a proposed change in the monthly amount on which the education tax credit is calculated.
¶ 1. Subsection 118.6(2) authorizes a student to claim an education tax credit determined by formula (see ¶ 2 below) for each month in the calendar year during which the student is enrolled in a qualifying educational program as a full-time student (see ¶s 5 to 7 below) at a designated educational institution, including the months in which a course starts and ends. If mandatory final examinations are taken in a month when there is no formal instruction or classroom activity, that month may qualify for inclusion in the formula provided the examinations are an integral part of the course of study and the other conditions described in the first sentence of this paragraph are met. If the designated educational institution is one that is certified by the Minister of Human Resources Development, then the education tax credit is available only if the student is enrolled in that program to obtain skills for, or improve skills in, an occupation. The expression "enrolled in the program to obtain skills for an occupation" means that there must be sufficient skills to be acquired in the program to enable the student to work at an occupation. The expression "enrolled in the program to improve skills in an occupation" implies that the student already possesses sufficient skills to enable the student to work at an occupation and the program must be capable of improving those skills. It is a question of fact whether a particular program is capable of improving a student's occupational skills or is sufficient to furnish the student with enough skills to enable the student to work at an occupation.
¶ 2. The amount of the education tax credit is determined by multiplying the lowest tax rate percentage referred to in subsection 117(2) by $80 and by the number of months (see ¶ 1 above) during which the student is enrolled in a qualifying educational program (see ¶s 10 to 16 below) as a full-time student at a designated educational institution (see ¶ 8 below). 17% has been the lowest tax rate percentage from 1988 to the date of publication of this bulletin. Also, a part-time student in a qualifying educational program at a designated educational institution is eligible for the credit if the student
(a) is eligible for the disability tax credit for the year, or
(b) has, in the year, a mental or physical impairment and a medical doctor, or in the case of a visual impairment, a medical doctor or optometrist, has certified in writing that the effects of the impairment are such that the student cannot reasonably be expected to be enrolled as a full-time student while so impaired.
For information on eligibility for the disability tax credit, see the current version of IT-519, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.
Note: As part of the 1996 Federal Budget, a Notice of Ways and Means Motion to Amend the Income Tax Act was tabled in the House of Commons on March 6, 1996. Among the proposed amendments was the following:
That, for the 1996 and subsequent taxation years, the monthly amount on which the education tax credit is calculated be increased to $100 from $80.
¶ 3. Certain of the student's unused tax credits for the year, including the education tax credit, may be transferred to, and claimed as a tax credit by, the student's spouse, under section 118.8, or the student's parent or grandparent, under section 118.9. See the current version of IT-516, Tuition Tax Credit for a discussion of the transfer of a student's unused tuition and education tax credits.
¶ 4. In all cases where an education tax credit or a transfer of the education tax credit is claimed, the student must obtain a certificate authorized by the Minister (Form T2202, Education Credit Certificate for Full-Time and Part-Time Students, or T2202A, Tuition and Education Credit Certificate) as proof of enrolment issued by the designated educational institution and containing prescribed information. While it is no longer necessary to file the certificate with the T1 income tax return, taxpayers who claim all or a portion of the available education tax credit should retain a copy of the certificate for their records as the Minister of National Revenue has the authority under subsection 220(2.1) to subsequently request it.
¶ 5. The requirement in subsection 118.6(2) for enrolment as a full-time student at a designated educational institution (see ¶ 1 above) must be met on the basis of the facts in each case. This requirement can be met by a student taking courses by correspondence or by a person enrolled in a distance education program. The requirement for enrolment as a full-time student at a designated educational institution is a separate test over and above the requirement respecting a "qualifying educational program" (see ¶s 10 to 16 below).
¶ 6. A student who is in regular attendance in a qualifying educational program is considered to be enrolled as a full-time student. Similarly, a student who is participating in post-graduate studies on a regular basis in a particular month is ordinarily considered to be enrolled as a full-time student if the student is registered for the regular academic year even though the requirements for attendance in class for such studies are minimal. Therefore, such a student who spends much of the time in a laboratory or library engaged in research or writing a thesis or who spends part of the academic year engaged in research elsewhere than at the university would normally be regarded as being a full-time student at the institution where the student is so registered.
¶ 7. Some universities provide "co-operative" courses in which the student attends for an academic period and then works for a like period in a business or industry relating to the student's academic studies. The student is regarded as being enrolled as a full-time student only during those months in which university is attended.
¶ 8. A "designated educational institution," as defined in subsection 118.6(1), means any of the following:
(a) a university, college, or other educational institution in Canada that has been designated by the Lieutenant Governor in Council of a province as a specified educational institution under the Canada Student Loans Act, designated by an appropriate authority under the Canada Student Financial Assistance Act, or designated by the Minister of Higher Education and Science of the Province of Quebec for the purposes of An Act respecting financial assistance for students of the Province of Quebec;
(b) an educational institution in Canada, certified by the Minister of Human Resources Development as one providing courses, other than courses designed for university credit, that furnish a person with skills for, or improve a person's skills in, an occupation;
(c) a university outside Canada at which the student for whom the education tax credit is determined is enrolled in a course of at least 13 consecutive weeks duration, leading to a degree; or
(d) a university, college or other educational institution in the United States providing courses at the post-secondary school level if the student for whom the education tax credit is determined resides throughout the year in Canada near the border between Canada and the United States and commutes to that educational institution.
For the purposes of (c) above, the degree must not be lower than the bachelor or equivalent level. For further discussion, see the current version of IT-516.
¶ 9. An educational institution wishing to establish whether it qualifies as a designated educational institution within the meaning of subsection 118.6(1) may direct an enquiry concerning:
(a) ¶ 8(a) above to
Canada Student Loans Program
Youth Learning and Literacy Directorate
Human Resources Development Canada
25 Eddy Street
Hull QC K1A 0M5
(b) ¶ 8(b) above to
Certification of Private Educational Institutions
Human Resources Development Canada
Phase IV, 4th Floor
Place du Portage
140 Promenade du Portage
Hull QC K1A 0J9
International Tax Directorate
Tower C, 2nd Floor
25 McArthur Road
Vanier ON K1A 0L5
¶ 10. To be a "qualifying educational program" as defined in subsection 118.6(1), a program must run for at least three consecutive weeks and must require instruction or work in the program of at least ten hours a week throughout its duration and not simply for a minimum three-week period. Thus, a student taking several courses for three weeks out of an entire semester and meeting the ten hours per week requirement for those three weeks only, but not throughout the remainder of the semester, may qualify for the education tax credit for any month in which the qualifying three weeks occurred, but would not qualify for the remainder of the semester. In such a case, the student would be considered to have followed two different programs during that semester, the three-week program that qualified and the remainder that did not.
¶ 11. The instruction or work referred to in ¶ 10 above includes all forms of direct instruction, such as lectures, practical training, or laboratory work. Time spent by post-graduate students on research for the purpose of writing a thesis also qualifies. A student taking four full courses or more at an educational institution described in ¶ 8(a) above will be accepted as being enrolled in a "qualifying educational program." However, when such a student is taking only three full courses, the educational institution must ensure that the work in the program satisfies the 10 hours per week requirement. When the program of a student falls short of providing 10 hours weekly of lectures, practical training and/or laboratory work, that student's time may be augmented by a reasonable estimate of time outside the classroom or laboratory, normally required and expected of a student during a particular program, for work assignments or other items listed below:
(a) after enrolment, taking a test at the beginning of a program to establish the program level at which the student will participate;
(b) taking an achievement test at the end of a program;
(d) term papers;
(e) other written work; and
(f) oral presentations.
¶ 12. In the case of a student enrolled at a designated educational institution referred to in ¶s 8(a), (c) and (d) above, the program of study must be at a post-secondary school level in order to qualify. Thus, in order to be considered a qualifying educational program, a program must be at a post-secondary school level, except in the case of courses (other than courses designed for university credit) provided by educational institutions certified by the Minister of Human Resources Development referred to in ¶ 8(b) above. Generally, in Canada, to be considered at the "post-secondary school level," a course should provide credit towards a degree, diploma or certificate. Normally, a prerequisite for taking the course is the completion of secondary school. It is generally assumed that a course is at the post-secondary school level if the education ministry for the province in which the course is given considers it to be at that level.
¶ 13. Except as described in ¶ 14 below, if a student receives an allowance, benefit, grant, or reimbursement of expenses in connection with a program from a person with whom the student was dealing at arm's length, that program is excluded by paragraph (a) of the definition of "qualifying educational program." The following individuals, for example, are disqualified from claiming the education tax credit by virtue of their receipt of an allowance, benefit, grant or reimbursement of expenses from a program:
(a) nurses in training who are provided with free board and lodging or other similar benefits or who receive an allowance under their training program;
(b) students in receipt of a training allowance under the National Training Act; and
(c) individuals who receive benefits from workshops, seminars, training programs and similar development programs because of their membership in a registered national arts service organization.
¶ 14. Pursuant to subparagraphs (a)(i) and (ii) of the definition of "qualifying educational program," programs are not excluded if the student receives:
(a) an award, such as a scholarship, fellowship or bursary, or a prize for achievement in the student's ordinary field of endeavour; or
(b) any benefit under the Canada Student Loans Act or An Act respecting financial assistance for students of the Province of Quebec, or by reason of financial assistance given to the student in accordance with the requirements of the Canada Student Financial Assistance Act. A non-repayable portion of a student loan is not considered to be a grant within the meaning of paragraph (a) of the definition of "qualifying educational program" and does not disqualify a student from claiming the education tax credit.
An occupational training allowance similar to that in ¶ 13(b) above but given by any other granting authority must be examined to determine if it is included in income under a separate provision of the Income Tax Act, and, if not, if the allowance should be considered to be a bursary for the purposes of paragraph 56(1)(n). If the allowance is included in income under a separate provision of the Income Tax Act the student is disqualified from claiming the education tax credit. If the allowance can be considered a bursary, the student is not disqualified from claiming the education tax credit as a result of receiving the allowance.
¶ 15. In view of the provisions of paragraph (a) of the definition of "qualifying educational program," a student's right to the education tax credit may depend on whether an amount received is a grant or is a scholarship or bursary. The payer's designation of an amount as a grant, scholarship, or bursary does not necessarily indicate the real nature of a payment; in some cases the contractual arrangements under which a payment was made must be examined.
¶ 16. Some post-secondary school level programs are available without payment of any tuition fees. As described above, receipt of a benefit frequently disqualifies a student from being entitled to an education tax credit in connection with a program. However, "free tuition" is not considered to be a benefit if the program is available to the public at large at no cost.
¶ 17. Paragraph (b) of the definition of "qualifying educational program" excludes any program taken by a student
(a) during a period for which the student receives income from an office or employment, and
(b) in connection with or as part of the duties of that office or employment.
This exclusion applies, for example, when an employee continues to receive salary while attending a course related to the employment. However, it does not apply when a student accepts part-time or temporary employment to finance his or her education, for example, when a graduate student is employed by the university to assist in teaching or marking examination papers.
¶ 18. When a student who is or was employed receives a scholarship or bursary from the student's employer on condition that the student return to that employment, the amount is considered to be income of the student under subsection 5(1) pursuant to subsection 6(3), and not scholarship income within the meaning of paragraph 56(1)(n). The student would likely be disqualified from claiming the education tax credit by paragraph (b) of the definition of "qualifying educational program."
¶ 19. When an employer/employee relationship has not yet been established and a student receives a scholarship or bursary in return for undertaking to enter the employment of the person granting the award after completion of the studies or course of training, the payment received would normally be considered to be scholarship income under paragraph 56(1)(n) and it would not disqualify the student-recipient from claiming the education tax credit by virtue of paragraph (b) of the definition of "qualifying educational program." However, any such payments arising, or received, after the student becomes a full-time employee must be treated in accordance with the comments in ¶ 18 above.
¶ 20. Further information on the nature of grants, scholarships, remuneration from employment, etc., for the purposes of ¶s 17 to 19 above can be found in the current versions of the following bulletins:
IT-75, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants; and
IT-340, Scholarships, Fellowships, Bursaries and Research Grants -- Forgivable Loans, Repayable Awards and Repayable Employment Income.
¶ 21. The application of paragraph (b) of the definition of "qualifying educational program" to teachers taking university courses during the summer vacation depends on conditions (a) and (b) in ¶ 17 above. The period for which a teacher receives salary (that is, the earning period) must be determined. For example, under the terms of the standard teaching contract in Ontario, a teacher receives salary for the period from September 1 to June 30. The fact that arrangements may be made to pay the salary over a twelve-month period is irrelevant. Since summer courses are normally taken during July and August, in most cases Ontario teachers attending university summer courses may claim the education tax credit since paragraph (b) of the definition of "qualifying educational program" does not apply.
¶ 22. The following individuals are subject to the provisions of paragraph (b) of the definition of "qualifying educational program":
(a) interns employed by a hospital; and
(b) individuals who are taking a course leading to an accounting designation and are employed in a related field.
The purpose of the Explanation of Changes is to give the reasons for the revisions to an interpretation bulletin. It outlines revisions that we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations.
The bulletin reflects amendments to the Income Tax Act resulting from S.C. 1994, c.28 (formerly Bill C-28) and the Notice of Ways and Means Motion to Amend the Income Tax Act tabled in the House of Commons on March 6, 1996 (1996 Federal Budget). Except as described in the Note following ¶ 2, the comments in the bulletin are not affected by any other proposed legislation that has been released before September 27, 1996.
In the Summary, ¶s 1, 8(b) (former ¶ 12(b)), 9(b) (former ¶ 13(b)) and 12 (former ¶ 16) the references to the Minister or the Department of "Employment and Immigration" have been changed to "Human Resources Development." These references are made in connection with the certification of an educational institution in Canada which provides courses, other than courses designed for university credit, that furnish a person with skills for, or improve a person's skills in, an occupation.
A Note has been added following ¶ 2 to describe a proposed amendment contained in a Notice of Ways and Means Motion to Amend the Income Tax Act tabled in the House of Commons on March 6, 1996.
¶ 3 has been revised to refer the reader to the current version of IT-516, Tuition Tax Credit for a discussion of the transfer of the education tax credit to the student's spouse, parent or grandparent. Former ¶s 4 -- 7 have been deleted as they discussed various aspects of the transfer of the education tax credit to the student's spouse, parent or grandparent.
¶ 8 (former ¶ 11) was revised to add an observation concerning the requirement that a student enrolled at a university outside of Canada must be in a course leading to a degree.
¶s 8(a) (former ¶ 12(a)) and 14(b) (former ¶ 18(b)) reflect the amendments effective on June 23, 1994, to subsection 118.6(1) by adding a reference to the Canada Student Financial Assistance Act. A student may claim an education tax credit for those months in the year that the student is enrolled in a designated educational institution in Canada that is designated under that Act among others.
¶s 9(a) and (c) (former ¶s 13(a) and (c)) have been revised to identify the appropriate names and addresses for information on the Canada Student Loans program and on universities and other educational institutions outside Canada.
¶ 12 (former ¶ 16) has been expanded to discuss the meaning of "post-secondary school level."
¶ 13 (former ¶ 17) has been revised to add a new example of individuals who are disqualified from claiming the education tax credit by virtue of their receipt of an allowance, benefit, grant or reimbursement of expenses from a program.
¶ 14 (former ¶ 18) has been revised to explain the circumstances when a student in receipt of occupational training allowances similar to those provided by the National Training Act but given by another granting authority is entitled to claim the education tax credit.
¶ 16 is a new paragraph which observes that the receipt of a benefit frequently disqualifies a student from being entitled to an education tax credit in connection with a program but there is an exception where the benefit is free tuition and the program is available to the general public at no cost.
Former ¶s 26 to 30 have not been carried forward as they are no longer relevant.
In addition to the deletions noted above, throughout the bulletin we deleted other observations that are no longer relevant and we have revised some of the wording to improve readability without altering the substance.
Interpretation bulletins (ITs) provide Revenue Canada's technical interpretations of income tax law. Due to their technical nature, ITs are used primarily by departmental staff, tax specialists, and other individuals who have an interest in tax matters. For those readers who prefer a less technical explanation of the law, the Department offers other publications, such as tax guides and pamphlets.
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An interpretation described in an IT applies as of the date the IT is published, unless otherwise specified. When there is a change in a previous interpretation and the change is beneficial to taxpayers, it is usually effective for all future assessments and reassessments. If the change is not favourable to taxpayers, it will normally be effective for the current and subsequent taxation years or for transactions entered into after the date of the IT.
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Director, Business and Publications Division
Income Tax Rulings Directorate
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