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A lesson in student tax credits
12/13/2017 7:25:35 PM
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TAX PLANNING
Tax-saving tips and strategies from a leading Canadian tax-planning expert.



By Samantha Prasad  | Thursday, November 30, 2017


 



As year-end approaches, parents with kids in post-secondary schools are starting to add up the first-semester bills. And they can be big ones. Fortunately, there is some tax relief at hand in the form of assorted deductions and credits for students. By keeping yourself well informed about these, you can ensure you’ll get at least some of that money put back into your hands. Keep in mind, however, that the 2017 federal budget cut the amount of refundable money available. So here’s a lesson for parents in student tax savings, starting with the two biggies: the tuition and education credits.

Tuition credit

A student may deduct a credit for tuition fees paid for certain types of schooling from federal taxes payable. To be eligible, the student must pay tuition fees in excess of $100 to either an educational institution in Canada for courses at the post-secondary level or an institution certified by the Minister of Human Resources. This would generally include a college or university, a professional organization providing courses to graduates of a secondary school, or a ministry-certified institution to acquire or improve occupational skills.

However, based on new rules as a result of the 2017 federal budget, if a student is at least 16 years of age, and the purpose of the course is to provide occupational skills, such courses will also apply. The credit is equal to an amount equal to the lowest tax rate multiplied by the tuition paid for the year (i.e., 15% for 2017). Some private secondary schools offer university-level courses that qualify for the tuition and education tax credits.

However, where an athletic scholarship is paid on behalf of an individual or the individual is entitled to a reimbursement for the fees, the tuition tax credit is not available unless the scholar-ship or reimbursement is included in the student’s income for the year. The tuition credit will not be available if the fees are reimbursed by a student’s employer, or if the student is reimbursed or receives assistance from a federal or provincial job training program, unless the amount is included in the student’s income.

Education credit

Prior to 2017, a student was also able to claim an “education credit” equal to the lowest tax rate percentage (i.e., 15% for 2017) multiplied by $400 per month (i.e., $60 a month) for each month in the year that the student was enrolled as a full-time student at a designated institution, and enrolled in a qualifying educational program. (Note: There was no full-time enrolment requirement for students who are disabled or cannot be enrolled full-time by reason of mental or physical impairment.)

A qualifying educational program was one that required at least 10 hours per week of work, and was at least three consecutive weeks in duration. at a post- secondary school level, except in the case of courses to improve occupational skills certified by the Ministry of Human Resources Development.

A “part-time education credit” was also available for qualifying educational programs lasting at least three consecutive weeks and involving a minimum of 12 hours of courses per month. The net tax credit available was $18 a month (15% of $120 per month).

However, as a result of changes announced in the 2016 federal budget, effective January 1, 2017, the education tax credit and a textbook credit were eliminated. If however, you had unused education and textbook credits carried forward from prior years, they will remain available to be claimed in 2017 and subsequent years.

Transfer or carry forward credits

The tuition credit, and any unused education and textbook credits from prior years, may be a good source of shelter for a parent, grandparent, or spouse of a child, as these credits may be transferred to any of the latter (only one transferee is allowed). However, the amount transferred is limited to the amount that the student designates in writing. This amount, in turn, is limited to the lesser of the total amount of education, tuition, and textbook credits combined and $5,000 less the amount claimed by the student. (The transfer does not necessarily have to be to the parent or grandparent who actually paid the fees.)

Note: One tax case confirms that the transfer can be of current year credits, but not those carried forward by the student. This extra shelter provided by your child, when combined with. proper income-splitting techniques with a child could help ease a parent’s tax burden.

If a parent does not require this extra shelter, and there is insufficient tax on the part of the student to absorb the credits, any unused combined education, tuition, and textbook credits can be carried forward for future use by the student. However, if a student passes up claiming the credit, thereby leaving a tax liability, a CRA Technical Interpretation confirms that the credit carryforward will erode. So it’s a case of use it or lose it.

The CRA also indicates that the use of certain other credits (such as medical or dividend tax credits), rather than the education-based credits, will also reduce the amount available for carry forward. Another way to look at this is that if an individual has more than enough of these credits to wipe out his or her tax, and there is no benefit to a potential transferee, they will simply go to waste.

Next time: Studying abroad, student loans, transportation credit, and notes on filing a student tax return.

Samantha Prasad, LL.B., is a Partner with Toronto law firm Minden Gross LLP, a Meritas Law Firm Worldwide affiliate, and specializes in corporate, estate, and international tax planning. She writes frequently on tax issues, and is the co-editor of various Wolters Kluwer Ltd. tax publications. Portions of this article first appeared in The TaxLetter, © 2017 by MPL Communications Ltd. Used with permission.

Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

 
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