2018-0784491E5 Tuition carry-forward pool

Principal Issues: Can an individual who has recently left Canada use the carry-forward pool of tuition tax credits earned while resident in Canada, upon a return to Canada at a later time.

Position: Yes.

Reasons: The carry-forward pool does not expire if an individual becomes non-resident. Only having taxes payable will reduce the carry-forward pool.

Author: Wirag, Eric
Section: 118.61

XXXXXXXXXX                                                                                                                           2018-078449
                                                                                                                                                   Eric Wirag, CPA, CMA
March 11, 2019

Dear XXXXXXXXXX:

Re: Carry-forward of tuition tax credit

This is in reply to your letter of November 1, 2018, regarding the carry-forward of unused tuition tax credits.  More specifically, you are asking if an individual with unused tuition tax credits who ceases to be resident in Canada will have the credits available if they become resident in Canada again in a future year.

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R8, Advance Income Tax Rulings and Technical Interpretations.

Under the Canadian income tax system, an individual's liability for income tax is based on his or her status as a resident or a non-resident of Canada. An individual who is resident in Canada during a tax year is subject to Canadian income tax on his or her worldwide income from all sources. Generally, a non-resident individual is only subject to Canadian income tax on income from sources inside Canada.

It is a question of fact whether an individual is a resident of Canada during a tax year.  The most important factor to be considered in determining whether an individual leaving Canada remains resident of Canada for tax purposes is whether the individual maintains residential ties with Canada while abroad. While the residence status of an individual can only be determined on a case by case basis after taking into consideration all of the relevant facts, generally, unless an individual severs all significant residential ties with Canada upon leaving Canada, the individual will continue to be a factual resident of Canada and subject to Canadian tax on his or her worldwide income.  While a relevant factor, the fact that an individual gives up Canadian Permanent Resident or Canadian Citizen status will not be determinative of their residence for Canadian income tax purposes.

Section 118.61 of the Act permits a student to carry forward any unused tuition tax credit (earned while a resident of Canada), to the extent that it has not been transferred to a spouse or a supporting individual.  An individual will be entitled to carry forward any unused tuition tax credits indefinitely, even if he or she ceases to be a resident of Canada for Canadian income tax purposes.

These credits will be allowed against the taxpayer’s future Canadian income taxes otherwise payable under Part I of the Act.  The amount of a student’s tuition, education and textbook tax credit carry-forward that can be claimed in a year is determined by subsection 118.61(2). Under this provision a student may claim, in a tax year, the lesser of:

*     the unused tuition, education and textbook tax credits carried forward from the previous year; and

*     the amount that would be the student’s Part I tax payable for the tax year if only certain specified non-refundable tax credits were claimed.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz, CPA, CA
Manager - Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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