I'm audited for Tuition / Education Credits

[downloadduckss]

Hi, what are you thoughts on my situation?

I worked full-time, and studied part-time for my MBA in the 2011 tax year. For tax purposes the school deemed my studies to be a Full-Time student. Now my work reimbursed 50% of the cost of my tuition (via reimbursement of expenses), and on my tax return, I did NOT include the reimbursed amounts I received in my my income because I only claimed 50% of tuition credits in 2011. (also because my employer did not include the amount of reimbursement in my pay stub).

For tax year 2011, my employer's T4 did not include the reimbursed tuition amounts. For tuition credits, I've only claimed 50%, and 100% in education/textbook credits.

The reason I claimed 100% credits for education/textbook was I thought that is related to the status of the student (part-time vs full-time)

Is the above the right treatment? because the CRA is asking for me to submit my backups.

Many thanks!

[MoneyGal]

I don't know the answer to your question. However, I do want to let you know that your return has been selected for *review,* not audit, as part of the CRA matching program. They're just matching your claimed credits to your allowable deductions. Here's more information on the review process: http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

[stardancer]

Write a letter to accompany your T2202a, explaining that you were reimbursed 50% of your tuition by your employer; that difference is probably what set off the review. Tell them you claimed 100% of the education/textbook credits because the T2202a has full-time checked off; do not mention anything about being full or part time. Fax the letter with the T2202a to the number provided on the review request; make sure you write the reference number on each piece of paper you fax (or mail); I also fax the first page of the letter with the package.

[TaxGuy]

The credit cannot be claimed at all if your employer paid all or part of the tuition. If you include the employer amount in your taxable income, then you can claim the full credit. There is no provision of proportional credits.

Look at your T4 to see if the tuition was included in your income. If it was, then claim the whole tuition and education credits.

You could submit a T1-ADJ to include the employer paid tuition in your income and claim the full credit.

[MoneyGal]

But wouldn't that leave the OP worse off financially? The tuition credit has to be a max of 15% -- while his or her marginal rate on the tuition (if included as income) would almost certainly be higher. No?

[Young&Ambitious]

An employer wouldn't be paying for a MBA if it did not relate to the business, so assuming the MBA is benefitting the company it is a valid expense for the company. So the 50% claim of the tax credit is reasonable and furthermore, the OP would not include the employer's contribution towards education in his/her income.

[TaxGuy]

An employer wouldn't be paying for a MBA if it did not relate to the business, so assuming the MBA is benefitting the company it is a valid expense for the company. So the 50% claim of the tax credit is reasonable and furthermore, the OP would not include the employer's contribution towards education in his/her income.

The income inclusion is covered by subsection 6 of the Act. That provision could allow for tuition to not be taxable. However, subsection 118.5(1)(a)(iii) deny's the credit unless the tuition was included in income.

118.5(1)(a)(iii) For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted, [...] 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 educational institution, [ ... ] except to the extent that those fees are paid on the individual's behalf by the individual's employer and are not included in computing the individual's income,

If the OP does not claim the tuition as income, then he cannot claim the credit.

[downloadduckss]

The credit cannot be claimed at all if your employer paid all or part of the tuition. If you include the employer amount in your taxable income, then you can claim the full credit. There is no provision of proportional credits.

Look at your T4 to see if the tuition was included in your income. If it was, then claim the whole tuition and education credits.

You could submit a T1-ADJ to include the employer paid tuition in your income and claim the full credit.

On the CRA website, it says: "Fees that were reimbursed to you ... cannot be claimed unless the reimbursed amount is included in income. Only the eligible tuition fees minus the amount received as a tuition reimbursement can be deducted."
http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

I'm so confused with the wording...

[Young&Ambitious]

Only the eligible tuition fees minus the amount received as a tuition reimbursement can be deducted."

The amount you paid for tuition will include amounts that are not eligible for the tax credit from the CRA and therefore is not eligible tuition fees. This might be mandatory bus passes or student association fees for example that are often included in tuition.

So therefore if for example you paid $30,000 of eligible tuition (this will be the amount reported on your T2202A (I believe the form is called this off the top of my head) and your employer contributed $15,000 therefore the amount you can claim is $15,000 in eligible tuition.

[Young&Ambitious]

The income inclusion is covered by subsection 6 of the Act. That provision could allow for tuition to not be taxable. However, subsection 118.5(1)(a)(iii) deny's the credit unless the tuition was included in income.

Hmm it seems you are right which is a shame as this isn't very equitable which the ITA tries to be generally. Paragraph 15 of the interpretation bulletin suggests that this is regardless of whether the tuition was fully or partially reimbursed. http://www.cra-arc.gc.ca/E/pub/tp/it...it516r2-e.html