Financing Education: Tax relief for expensive university textbooks endsPosted: May 16, 2017 VIA: Knowledge Bureau
Posted in: Breaking News
Students and their parents will be looking for new ways to fund post-secondary education this year, as tax relief has been significantly curtailed with the removal of the monthly education and textbook amounts.
Four potential lines of defence are available and require discussion before summer: finding a job, drawing from RRSP or RESP savings, or from the TFSA.First figure out how much you’ll lose through the tax system. Consulting a DFA-Tax Services Specialist can help you determine the shortfall, based on whether you are a full-time or part-time student. Next, figure out what your after-tax employment earnings will be –the cash-in-pocket number is what you are interested in. Remember, you can always reduce your taxes payable with an RRSP contribution. Not only will contributing to the RRSP reduce net and taxable income, it will also allow you to earn income on a tax-deferred basis until withdrawal. Generally, you wouldn’t draw on your RRSP savings until you are in retirement; however, the RRSP also features a Lifelong Learning Plan option, which allows you to withdraw funds on a tax-free basis to help fund your education now, with a repayment plan to replenish those funds for the future. Again, see a tax specialist for help with this.
The RESP is a good option as well. Here are the withdrawal features: When funds are withdrawn from an RESP by a student, the portion of the amount withdrawn that represents contributions made to the plan are received tax-free. The remainder of the receipts represents government contributions to the plan plus income earned by both the personal and government contributions. These amounts are referred to as “educational assistance payments” and are taxable to the student. The maximum amount that can be withdrawn from an RESP is $5,000 until the student has completed 13 weeks of schooling. After the 13 weeks have been completed, the only limit on withdrawals is the balance in the RESP.
Finally, those with TFSA savings can tap into their tax-free savings, and at the same time know that their TFSA room will be preserved. In other words, you can put the money back into the TFSA when you can afford to.
Remember, if the student is not taxable, or if the full amount of the remaining tuition fee amount is not needed in 2017, this pared-down tax credit may be transferred from the student to the supporting individual. A maximum transfer of $5000 is allowed. If the student uses any of the current-year credit, the maximum transfer amount is reduced by the amount used by the student. As an alternative, the student can also decide not to transfer the amount at all and instead carry any unused amount forward to be used in future years to offset income tax payable then. This may make sense in some cases.
Your DFA-Tax Services Specialist can help you decide the best course of action. Check out Knowledge Bureau’s Income Tax Estimator as another self-help resource.
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