Education and Tuition Tax Credits Revisited by Tax Court
The Tax Court of Canada released its decision in Kandasamy on February 17, 2014. The case revisits an issue that was thought resolved by the Tax Court, in Pan et al v. The Queen 2010 TCC 147 – the denial of the claim for the education tax credit (“ETC”) and tuition tax credit (“TTC”) by medical residents.
In assessing the Appellants in this case, the Minister took a new position to deny the ETC. Their position, among others, was that the program was carried on by a hospital as opposed to a university, that the residents spent less than ten hours a week in courses, and the Appellants were not full-time students at a university.
The facts of the case are extensive, but can be summarized as follows.
For the holder of a Doctor of Medicine (“M.D.”), completion of a post-graduate medical residency program is required to qualify for a license to practice medicine in Ontario. These programs are administered through Faculties or Schools of Medicine at Ontario universities in conjunction with hospitals, referred to as teaching hospitals, affiliated with the university.
The resident pays a registration fee to the university but no tuition. The resident may work anywhere from fifty or more hours a week for a salary in a teaching hospital supervised by senior physicians who are appointed by the university. The Province of Ontario funds the accredited universities for the residency programs. The program also includes two to four hours of academic courses per month. The Ontario Ministry of Training, Colleges and Universities uses full-time registration codes and the universities consider the residents as full-time students enrolled at the particular university. In the following year, the university issues the resident the prescribed Tuition, Education and Textbook Amounts Certificate for filing with the Minister of National Revenue (“Minister”) with respect to the student’s time within the residency program.
The issues to be decided in the case were as follows:
a) Whether each of the appellants spent ten or more hours a week on courses in a program within the meaning of “qualifying educational program” as defined in Subsection 118.6(1) of the Act;
b) Whether each of the appellants were a “full-time student”; and
c) Whether each appellant was enrolled in a qualifying educational program as a full-time student at a designated educational institution.
The Minister’s position was that each of the Appellants was not a “full time student” since the resident’s primary occupation as a resident was as an employee of the hospital and not as a student. The Minister also took the position that the residency program was not undertaken at a designated educational institution, as the residency program takes place primarily in a hospital and not a university.
The Appellants appealed the Minister’s assessment on the basis that they were each a student enrolled in a qualifying educational program as a full-time student at a designated educational institution. The Appellants presented evidence that the university considers the residents to be full-time students, the university determines whether a resident may advance to the next level in the resident program and the university may discipline a resident. Further, the university’s decision is binding on the hospital.
Justice Rip held that the residents had a dual status as employees and full-time students. With respect to the Minister’s position that the residency program was undertaken at a hospital and not a university, Justice Rip found otherwise, and relied on the expert evidence to support his view.
Justice Rip further held that the clinical portion of the residency program would not disqualify it from eligibility as a qualifying educational program as the word “or” in the phrase “course or work” in that definition in Subsection 118.6(1) of the Act must be conjunctive and allows an individual to complete a qualifying educational program that occurs in both a classroom and workplace setting.
Justice Rip concluded that the Appellants were eligible for an ETC as they qualified under Subparagraph 118.6(1)(a)(i), Subsection 118.6(2) and were enrolled as full-time students.
In closing Justice Rip made the following statement:
Respondent’s counsel startled me when he suggested that it would not be reasonable or fair to articling students seeking to qualify for the Bar or…Chartered Professional Accountants if I allowed residents to claim the education tax credit and not them… This is the first time in my 30 years as a judge that I heard the Crown suggest that it may be prejudiced because the Act may not be fair.
We don’t expect that this argument will be brought again by the Minister in the future.
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