Tax Forum
Deducting Education Costs
The education deduction as it relates to a profession is now allowed.
FROM:
NOV-DEC 2005 ISSUE | BY
DON GOODISON
Every so often something comes up that reminds me of how ridiculous some of the rules of the
Income Tax Act (the
Act) are. One example is contained in the case
Castela v. the Queen[2005 TCC 109], in which the taxpayer's claim for the education deduction was disallowed because the courses she took related to her job. While the rules governing the education deduction have since been changed (as part of the 2004 federal budget), the case is an interesting example of how the Act can often be confounding.
Castela is a resource teacher at an elementary school. In this capacity, she deals with special needs and ESL students who come to her classroom for instruction in small groups from other classes. The job requires that she adapt her teaching to the needs of the students based on the program in which each one is enrolled.
In 2002, Castela was enrolled in the Master of Arts program in Education/ Curriculum and Instruction at the University of Phoenix's Vancouver campus. She claimed the education deduction on her 2002 income tax return for the
11 months she was in the course. The Minister disallowed the education deduction on the grounds that the program was taken in connection with, or as part of, the duties of Castela's employment. Castela appealed to the Tax Court of Canada.
At trial, Castela argued that there was no connection between her work and the master's program. Her argument was supported by evidence that many of the courses in the program were interdisciplinary and being taken by people employed in other fields of work, such as nurses doing post-graduate studies, and business students, a fact corroborated by another student who was also enrolled in the program.
In addition, Castela produced a letter from her employer confirming that the program was not related to her employment, and as well as one from the university stating that the course was not a "one time
job-related course." Castela argued that the exclusion should only apply where a direct link exists between the education program and the student's duties.
She cited the Tax Court of Canada's decision in
Reiner v. The Queen [2004-2727(IT)I], in which the court, in finding for the appellant, held that the program that Reiner took was related to her profession, and not to her current work responsibilities, stating in part:
. . the program was not part of the duties of her employment. Nor was it in connection with her duties of employment. Rather, it was in connection with her profession. That profession — teaching — is not confined to School District No. 23. Nor is it even "in connection with" School District No. 23 any more than the calling of being a janitor is in connection with School District No. 23. That program was personal to Patricia Reiner as an individual who has her own duties and goals to and for herself. That is why she took it and paid for it herself.
The Minister argued that the provision must be interpreted broadly and that any connection with employment was enough to disallow the credit. Counsel pointed out that Castela would receive an automatic raise on completion of the master's program, since her salary was based partly on her education level.
The Minister's counsel asked the court to find that the exclusion was broad enough to exclude the credit not only where there is an incidental connection to the taxpayer's work, but also where no new career path is being pursued. In so doing, counsel made reference to the comments of Justice Dickson of the Supreme Court of Canada in
Nowegijick v. the Queen[83 DTC 5041], in which he stated:
The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to," "with reference to" or "in connection with." The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.
In her attempt to deflect the argument raised in
Reiner, counsel for the Minister stated that in order to accept that an education course was for professional advancement and not employment, the exclusionary provision would effectively be rendered meaningless.
In allowing the appeal, the Tax Court concluded that there was no direct link between Castela's employment and the course. The court also found that there was nothing in the expression "in connection with, or as part of the duties of, that office or employment" [found in
subparagraph (ii) of
paragraph (b) of the definition of "qualifying education program" in subsection 118.6(1) of the
Act] that supported the broad interpretation suggested by the Minister.
Furthermore, the court rejected the Minister's argument that accepting the premise that an education program was related to a profession and not to the duties would render the exclusionary provisions useless.
I have never been able to figure out why a student was disqualified from claiming the education deduction when the course is related to his/her duties or employment. I have had to tell students in the CGA Program of Professional Studies that they could claim the deduction if they flipped hamburgers at McDonalds, but not if they worked in an accounting office. Where is the logic in that? A taxpayer who takes courses and programs related to their work usually receive pay increases. Those pay increases translate into more tax dollars for the government, and keeps the taxpayer employed.
Fortunately, someone in the government Finance department recognized the absurdity, and the exclusion was eliminated in 2004. I found it interesting that counsel for the Minister attempted to use the amendment to strengthen her case, by pointing to the Supplementary Information to the Budget which contained the following comment:
The education tax credit cannot currently be claimed by students who pursue post-secondary education that is related to their current employment [due to 118.6(1) "qualifying educational program"]. In order to facilitate the pursuit of
job-related lifelong learning, the Budget proposes to remove this restriction provided that no part of the costs of education is reimbursed by the employer.
She suggested that the reference to "
job-related lifelong learning program" shows that the exclusion was to be very restrictive.
The exclusion, however, was eliminated effective for the 2004 taxation year and beyond, so claims made prior to 2004 are not guaranteed to go unchallenged.
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Don Goodison, CFP, FCGA, is a partner of Kemp Harvey Goodison, Certified General Accountants, in Burnaby, B.C. E-mail
goodison@axionet.com.
The information appearing in "Tax Forum" is provided for the interest of the readers. Neither
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