Private School = Tax Break?

It’s back-to-school season and that means time for that question we hear quite a bit over at The Tax Issue desk. Some folks are often surprised and a bit miffed when they discover that tuition fees only provide a tax credit when they are paid in respect of post-secondary education.

So where does that leave the parents of children who attend those oh-so-expensive private elementary and high schools? Generally, these fees provide no tax credit or deduction; however, there may be another way….

Could it be a Donation?

The most common alternative is that part of what we call tuition may sometimes be considered a charitable donation. It is therefore common for private schools to issue official donation receipts to parents paying private school tuition.

This practice is fraught with danger for both the payer and the school. In order for a payment to qualify as a donation, the gift must be made voluntarily and without expectation of return. No benefit of any kind may be provided to the donor or to anyone designated by the donor. Where any “donation” is mandatory as part of tuition, it is really not a gift for income tax purposes. The CRA and Revenue Quebec have both had their battles with taxpayers and private schools regarding this issue.

If a school is also a registered charity, the issuance of donation receipts for what really amounts to a portion of tuition is not, contrary to popular myth, a qualifying charitable donation.

The only exception to the above is where all or a portion of the tuition fees are in respect of religious studies. For federal tax purposes only (Quebec does not grant this concession) that would be considered as a qualifying donation, and a separate donation receipt may be issued for the religious studies portion of the annual tuition.

How About a Medical Expense?

The next alternative is not quite as popular as the charitable donation, and that is to claim the private school tuition fees as medical expenses.

The law allows as a medical expense an amount paid for care and training at a special school. A clear example would be a school dedicated to children with hearing deficits, such as the Montreal Oral School for the deaf.

A not-so-clear-example, is where a child has a learning disability, such as attention deficit disorder, and is placed in a private school offering tighter structure and smaller classes, where, perhaps the staff has had some training in dealing with such students.

This was the subject of the case of The Queen v. Scott . The taxpayer’s son was diagnosed with several learning disabilities. The court of appeal laid out the requirements for deductibility as follows:

  1. The taxpayer must pay an amount for the care or care and training at a school, institution or other place.
  2. The patient must suffer from a handicap.
  3. The school, institution or other place must specially provide to the patient suffering from the handicap, equipment, facilities or personnel for the care or the care and training of other persons suffering from the same handicap.
  4. An appropriately qualified person must certify the mental or physical handicap is the reason the patient requires that the school specially provide the equipment, facilities or personnel for the care or the care and training of individuals suffering from the same handicap.

The requirements in 3 and 4 above were at issue in the Scott case. Firstly, the private school was not a school specializing in children with learning disabilities. Rather it was a private school which offered smaller classes and other services to a wide range of students. The fact that some of the services offered to the general student body were beneficial to the taxpayer’s son and other students with special needs was not sufficient to bring the private school within the ambit of the provision.

Next, the fact that a doctor had recommended this particular school to the taxpayer was also not sufficient. The rule requires a “certification” by a qualified person. A mere recommendation did not meet the criteria, which, according to the court, would have required a formal expert opinion specifying the condition and reasons why this particular school had the equipment or personnel to treat the patient.

What’s Your Tax Issue? – Foreign Tuition Fees

The Tax Issue:

I am currently enrolled in an online Master’s program at a U.S. university. I am taking a part-time course load. My friend tells me I’m out of luck tax-wise because I won’t be able to deduct any tuition fees for an online course. Is she right?

The Answer:

Your friend is right, but for the wrong reason. First of all, let’s look at whether your enrollment qualifies, internet or not. The requirements for attendance at a foreign university are different than for Canadian institutions. In order to claim a tuition credit for a foreign school, you must be in full-time attendance at a university and each course must be at 13 weeks in duration.

In determining whether you are in “full time attendance”, the first thing to determine is whether online attendance is considered attendance at all for tax purposes. Recent jurisprudence has essentially answered the question and the CRA now concedes that attendance over the internet qualifies.

Next, you must be able to show that you are attendance “full time”. In this regard, the CRA has stated that students are ordinarily accepted as being in “full-time attendance” if the university regards them as such. Accordingly, a certificate from a university stating that a student was in full-time attendance in a particular academic year or semester will normally be accepted.

Finally, you must be enrolled in courses that last for 13 weeks.  Some US universities base their schedules on quarters, rather than semesters. If this is your case, then your course may not meet the 13-week criteria and you may not be able to claim any credit.

The fact that your course is an online program is not the problem. It’s the fact that you’re doing a part-time course load. You should also check your schedule to see if you meet the 13 week requirement for each course.

Interestingly, there would be no such restrictions if the school was Canadian. One wonders why there is a difference, especially in the age of the internet.

Finally, you should be aware that you might still be eligible for the education and textbook tax credits, which are separate from the tuition credit and will still provide you with a reduced tax credit for part-time attendance at a designated university. The full-time attendance requirement does not apply, but the 13-week course length does, so again, check your schedule.

For more information on these rules, see CRA Guide RC-192 , which outlines all the law and the forms you and your university will need to claim the credits.