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Post-Secondary Fees – More Than Just An Education

Most of us working adults can look back fondly on our respective university and college experiences. Whether we went to school for training in a skill or trade, or for a profession, we remember first day jitters of making friends all over again or all night-er study sessions before a big exam (the parties were also a good time). But did you know that, in addition to landing you that perfect job, the money you spent in a post-secondary institution also have a tax benefit to you directly? That’s right. Tax credits.

All eligible students of post-secondary education should receive a form T2202A Tuition and Education Certificate. Students who do not receive this form from their educational institution directly should be aware that they must log on and download a copy of the form from their online student account.

Thanks to relatively recent changes in the Income Tax Act, there are various non-refundable tax credits related to post-secondary education fees paid and the number of months spent in school that will directly benefit the student, or the students’ parent, grandparent, or caregiver. Depending on who can benefit the most out of the tax credits, either the student or a relative of the student, may claim the following tax credits.

 

  1. Fees Paid

 

The most obvious tax credit would be to receive credit to the actual tuition fees paid. This will be clearly indicated on the T2202A tax form.

 

  1. Months spent as a Part Time vs Full Time Student

 

The T2202A form will also clearly show the total number of months the taxpayer was either a part time or full time student. This is significant because the tax credits varying greatly between the two types of student, as shown below:

 

2011 Federal Rates on Schedule 11:

 

Part Time

Education credit = $120 x number of months

Textbook credit = $20 x number of months

 

Full Time

Education credit = $400 x number of months

Textbook credit = $65 x number of months

 

 

Total Tuition and Education Credits available to be claimed would be equal to:

Unused Tuition and Education Credit carried forward

Fees Paid

Education Credit

+ Textbook Credit

Total Claim Available

Advantages of the Tuition and Education Tax Credits

A real strength of this tax credit is the fact that, unlike many other credits and deductions, tuition and education credits will never expire and an unused portion can always be carried forward to the subsequent tax year. This allows for a lot of flexibility and tax planning when determining when to claim these credits.

An additional advantage of these credits is the fact that a portion can be transferred to a parent or grandparent of the student for them to claim on their returns and hence, reduce that person’s own taxes. This is reasonably for several reasons, as it allows for the family to maximize the potential tax savings of the credits, instead of forcing the student to be the only eligible person able to claim the credits. As well, it reflects the fact that in many cases, the student is not the person actually paying their tuition costs – it is typically the parents paying out of their own pocket and hence, they should be the ones to realize the tax benefit of the tuition fees.

It should be noted that the above tuition transfer comes with maximum limits built in. The maximum credit transfer that can be done (federally) is $5,000 in any one year. If after the $5,000 transfer there are credits still remaining in the student’s return, these amounts must be carried forward to the following year. Additionally, only tuition and education credits that are claimed in the year reported can only be transferred. Credits carried forward from a previous year are not allowed to be transferred.

What we have discussed above would give first time students and their families enough information to be somewhat familiar with how to go about claiming their tuition and education fees. It is always recommended to have your returns prepared by a knowledgeable tax professional who can perform proper tax planning to ensure your family receives the most effective return on the tuition claim. Furthermore, the monthly textbook and education rates and the transfer limit maximums vary from province to province. For that reason, we only discussed the federal rates above.

For further reading, please click on the link below for the Canada Revenue Agency General Enquires and Information website about the Tuition and Education Tax Credit.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/323/menu-eng.html