In 2017, the Canadian government eliminated the federal educational and textbook tax credits. However, they did not eliminate the tuition tax credit, allowing students the opportunity to apply tuition costs toward owing taxes.
While it may not seem like a huge tax break, it can relieve a significant financial burden on students who balance post-secondary studies with working and making an income.
If you are a student attending, or planning to attend, a post-secondary educational institution, you are going to want to make sure you take full advantage of this tax credit.
What is the Tuition Tax Credit?
The tuition tax credit is an education tax break offered to Canadians by the Canada Revenue Agency (CRA). It allows students 17 years of age and older who are enrolled in post-secondary education to use their tuition to reduce their taxable income.
The tuition amount, up to $5000, can also be transferred to a spouse, common law partner, parent or grandparent.
In order to be eligible for the tuition tax credit, students must attend a post-secondary level course at an accredited institution in Canada – although individuals may qualify at school abroad as well.
Student Loan Interest Deduction
In addition to the tuition tax credit, students may also be able to deduct interest from government issued student loans from their taxes. This only applies to government loans – interest from personal loans or lines of credit are not eligible.
Other School-related Deductions
Although Canada has done away with claiming textbooks and other school-related costs as tax deductions, students can take advantage of tax breaks related to moving costs.
The moving expenses deduction applies to individuals who move more than 40 kms away from home to attend an accredited educational institute on a full-time basis. This deduction may cover the costs of moving, airfare and the connection and transfer of utilities.
However, there are restrictions. A student can only apply relocation costs against the tax they are required to pay on scholarships, bursaries, fellowships, prizes and research grants.
How to Claim Tuition Tax Credits
The tuition tax credit is a non-refundable credit, meaning that if the tuition amount is greater than the tax owed, you won’t get a refund from the claimed amount. It works by decreasing or eliminating any amounts owed to the government.
Unused tuition amounts can be carried forward to the next year or transferred to a spouse, common law partner, parent or grandparent.
For example, if you claim $4500 worth of tuition but your owing tax bill is only $1000, you can transfer the remaining $3500 or carry forward to a future tax year. Because it is a non-refundable tax credit, you cannot receive that $3500 as a refund.
Calculating the Tax Tuition Credit
The Tax Tuition Credit is calculated by combining all eligible tuition fees then multiplying the total by the lowest federal tax rate percentage for the current tax. The federal tax rate percentage depends on your income bracket, which depends on which province you live in and how much income you declare.
Claiming the Tax Tuition Credit
Post-secondary institutions issue form T2202A (Tuition and Enrolment Certificate) to students, certifying that you have taken the eligible courses of necessary duration in order to qualify for the tax credit.
The form indicates in Box A the total eligible tuition fees paid as well as the months you were enrolled in school either part-time (Box B) or full-time (Box C).
Take Full Advantage of Tax Relief
If you are eligible for tax breaks because you are a student, be sure to take full advantage of these opportunities.
Our accountants at Liu & Associates can answer any questions you have related to your tuition costs and tax claims.