Tax Forum
Tuition Credits for Courses
Does taking a course online constitute "attendance"?
FROM: SEP-OCT 2006 ISSUE | BY DON GOODISON
Since the current Income Tax Act came into existence in 1972, it has undergone many changes. But some of the provisions in the Act haven't been updated, and this has lead to disputes between taxpayers and the Canada Revenue Agency. In Linda E. Valente v. Her Majesty the Queen [2005-2411(IT)I], the Tax Court of Canada had to decide if the appellant was in full-time attendance at a university in England, even though she completed her studies by distance.
In 2002, Valente enrolled in the master's of science program in manufacturing: management and technology at The Open University in England. Undertaking her studies online from Vancouver, at first she participated part time while maintaining her consulting business. In May 2003 she closed her business and enrolled full time. To complete her studies, she was provided with books, software, and visual presentations on CD, and although there were no lectures, she had access to tutors and peers through a dedicated online chat room. She arranged to write her exams at the University of British Columbia.
Valente claimed tuition fees of $11,084.46 on her 2003 income tax return. The Minister disallowed the claim on the basis that she was not in full-time attendance at The Open University. Valente appealed to the Tax Court of Canada.
The provision dealing with the tax credit for tuition fees is section 118.5, paragraph (1)(b), which states:
118.5 (1) Tuition credit - For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted,
[. . .]
(b) where the individual was during the year a student in full-time attendance at a university outside Canada in a course leading to a degree, an amount equal to the product obtained when the appropriate percentage for the year is multiplied by the amount of any fees for the individual's tuition paid in respect of the year to the university, except any such fees
(i) paid in respect of a course of less than 13 consecutive weeks duration, [. . .]
The key words in this paragraph are "full-time attendance," as the Minister interpreted them to mean physical presence at the university, while Valente obviously disagreed.
The courts have dealt with this matter on a number of occasions, and in most cases, the taxpayer has come out on the short end. However, the cases were heard under the Tax Court's Informal Procedure, meaning they do not form precedent. In Hlopina v. The Queen [96-4485(IT)I], Justice Bowie decided that the word "attendance" was too ambiguous and based his decision on the French version of the paragraph, which uses the word "frequente," interpreted to mean that a physical presence is required. This decision was followed in a subsequent case, Cleveland v. The Queen [2003-2319(IT)I], and came up again in Krause v. the Queen [2004-1193(IT)I]. Chief Justice Bowman felt compelled to write an opinion, in which he stated at paragraph 18:
[. . .] to say that someone attends university electronically by way of the internet does no violence at all to my understanding of the word "attend." We must recognize that this is 2004 and that whereas even 25 years ago to attend university required that one turn up physically at classes, technology has moved ahead so dramatically that it is entirely possible to attend lectures by seeing and hearing them on a computer.
Then at paragraph 24:
[. . .] I think it is strongly arguable that full-time attendance at a foreign university can include full-time attendance through the internet or on-line as is the case here. That view conforms to common sense and to the reality of modern technology.
In Valente's appeal, the court found that paragraph 118.5(1)(b) does not require physical presence at a university. In so finding, Justice Woods concluded:
The expression "full-time attendance" is ambiguous and in my view it should be interpreted liberally to include programs that require the "attention" of the student on a full-time basis, such as the online program taken by Ms. Valente. Denying the tax credit in Ms. Valente's circumstances does not provide a fair and liberal interpretation of the provision that is reasonable in the context of the tuition tax credit. Parliament is certainly entitled to require a student's physical presence at a foreign university for purposes of the credit. The legislation does not clearly provide that requirement, however, and I do not think that it should be inferred from a narrow interpretation of the expression "full-time attendance."
In 1972, would it have been possible to foresee the technological changes that have happened? I highly doubt it. Certainly there was no such thing as an online course, and physical attendance would have been the only way to meet the requirements of paragraph 118.5(1)(b) . But in 2006, one can attend a class by electronic means, and students can interact with instructors and other students using web cams. How, in reality, does that differ from being physically present?
I would hope that if Parliament does choose to clarify this issue, it considers the world as it is today and not the world as it was in 1972.
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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.