Back to School Tax Breaks

Evelyn Jacks

Like tax season, back-to-school season rolls around annually with certainty. But in today’s inflationary environment, the start-up costs for getting the family organizing for the school year may seem daunting. The good news is that tax and financial advisors can help clients understand their tax planning options and manage all the receipts that can lead to tax breaks later in the spring during tax filing time. Here’s a primer of topics you may wish to discuss:

The Tuition Fee Amount. Tuition fees qualify for a 14% non-refundable tax credit on the federal portion of the claim; more when the provincial credit are added. Manitoba, Nunavut, Northwest Territories, Nova Scotia, Newfoundland and Labrador, and PEI also have an education amount for you to claim. Altogether, the student will get a credit for about 25% of the tuition, depending on the province of residence. However there must be taxable income to benefit.

Tuition Fee Transfers. The unused tuition amount left over after a student’s taxable income is reduced to zero may be transferred (at least in part) to a spouse or other supporting individual up to a maximum of $5,000. If there is no one the student wishes to transfer the amounts to, the unused tuition may be carried forward to be used in a future year.

The Canada Training Credit. Some taxpayers are eligible for the refundable Canada Training Credit, which is equal to the lesser of one-half of the tuition and the accumulated Canada Training Credit entitlement. On top of this is the portion of the tuition fee credit left, if needed. It’s important to always file a tax return to earn this notional credit, which increases each year by $250, to a lifetime maximum of $5000. To claim the CTC the tax filer must be over 25 and under 66 and meet certain income requirements, described below:

Other tax assistance students may claim. Do cover the following options for university bound family members:

• Scholarship exemptions, with varying criteria depending on whether the student is attending school full-time or part-time student or has received an artist’s project grant.
• Research grants. It is possible to claim expenses paid to do research including travelling costs, the cost of an assistant or costs for certain equipment or lab fees but the amounts claimed can’t exceed the grant.
• Moving expenses. Full-time students can claim moving expenses only if there is income at the new location from taxable scholarships, fellowships, bursaries, prizes and like income, employment or self-employment, and the move at least 40 kilometers closer to the educational institution.
• Child-care expenses. This claim will reduce net income, which in turn can increase refundable tax credits like the federal Groceries and Essentials Benefit, the Canada Child Benefit, the Canada Workers Benefit (which can’t be claimed by full time students unless the student is a parent), and some provincial credits. But if the student is not taxable, the higher income earner, in the case of a couple, may qualify for a claim. Likewise, these expenses may reduce income to a level that enables a tuition transfer to a supporting person like a spouse.
• Medical Expenses. There is a long list of qualifying expenses including service animals or tutoring services that can help students to support their studies (remember that a medical practitioner must provide verification). Other eligible costs include private insurance premiums, eye glasses, contact lenses, prescriptions, the incremental costs of gluten-free food, and much more. This is an important, often-overlooked claim.    

RESP withdrawals. Those fortunate enough to have an RESP can withdraw money from the plan to go to school. The amounts are taxable to the student. Full-time students can withdraw $8,000 during the first 13 consecutive weeks of enrolment; part-time students can withdraw $4,000. After this, there is no limit, unless the beneficiary takes a 12-month break from studies. In that case, the $8,000 limit is reinstated. Both full- and part-time students now may receive payments for up to six months after the end of their studies if the expenses would have qualified during the study period.

TFSA withdrawals. This is also a good way to fund the costs of education, as the withdrawals are tax free and the amount withdrawn can later be recontributed to the TFSA.

Bottom line. Invite all new students, potential students and their supporting individuals who have not yet filed return for this year, to do so as soon as possible. It’s the first step in getting tax assistance to support the expensive costs of education.

Be sure to listen to Real Tax News with Evelyn Jacks and Friends for more information on this and other interesting tax topics.

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