Virtual classes get a real tax break
If you plan on attending post-secondary school online, you will be in store for some new tax relief. The Canada Revenue Agency has changed its position and is now extending tax relief to students of Internet-based colleges and uni-versities.
The Income Tax Act provides three primary credits for students: tuition credit for tuition fees paid; education credit based on each month of attendance at a qualifying educational institution; and the new textbook tax credit introduced last year.
Online learning presented two main stumbling blocks for tax relief. First, was the problem of qualifying for the education credit when classes were attended online instead of in person.
This was the issue in the 2004 tax court case of James Krause, who enrolled in a PhD program at Touro University International in California, took all of his courses online and did not physically attend any lectures.
The judge concluded that full-time attendance at a foreign university can include full-time attendance through the Internet. As he wrote, "technology has moved ahead so dramatically that it is entirely possible to attend lectures by see-ing and hearing them on a computer."
Then there is the matter of a Canadian student claiming the tuition credit for fees paid to a non-Canadian school. The tax rules state that in order to claim tuition fees for a Canadian post-secondary institution, a student must simply be "enrolled." However, when the university is outside Canada, the wording in the Tax Act is more specific: The student must be in "full-time attendance" at the university.
However, it was becoming increasingly clear that the CRA needed to update its rules. In November, 2006, the tax courts ruled in favour of Susan McGrath, a single mother of three, who completed her master's degree online at Walden University in Chicago -- without ever setting foot on campus. The judge concluded that since Ms. McGrath could not take this specialized degree in Canada, her only option was to attend online and thus, she should be eligible to claim the tuition credit. As the judge wrote, this conclusion "conforms with common sense and the reality of modern technology."
In May, the CRA announced that it has reconsidered its position with respect to the term "full-time attendance at a university outside Canada."
The new policy, effective for 2007 and future tax years, is that students who take courses with a university outside Canada via the Internet will be allowed a tuition tax credit provided the student is in "full-time attendance" and meets other criteria, most importantly, that fees have been paid for courses of at least 13 consecutive weeks in duration.
Jamie Golombek, CA, CPA, CFP, CLU, TEP is vice-president, taxation and estate planning, at AIM Trimark Investments in Toronto.