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As the summer starts to wind down, both students returning to their colleges and universities and those just starting their post-secondary education must focus on the details of the upcoming school year – finding a place to live, choosing courses, and perhaps most important, arranging payment of tuition and other education-related bills.
For many years post-secondary students (and their parents) have benefited from an “assist” through our tax system, which provides deductions and credits for some of the many costs associated with obtaining a post-secondary education. Unfortunately, some of the kinds of assistance which could be obtained through our tax system to help offset those costs has been eliminated in the past few years, but the following credits and deductions remain available to be claimed by post-secondary students and, in some cases, their spouses, parents, and grandparents.
The good news is that a tax credit continues to be available for the single largest cost associated with post-secondary education — the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. The provinces and territories also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.
The charges imposed on post-secondary students under the heading of “tuition” include myriad costs which may differ, depending on the particular program, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of that credit:
charges for use of library or laboratory facilities;
examination fees (including re-reading charges) that are integral to a program of study;
application fees (but only if the student subsequently enrolls in the institution);
charges for a certificate, diploma, or degree;
membership or seminar fees that are specifically related to an academic program and its administration;
mandatory computer service fees; and
The following charges do not, however, constitute tuition fees for purposes of the credit:
extracurricular student social activities;
transportation and parking;
board and lodging;
goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer);
initiation fees or entrance fees to professional organizations including examination fees or other fees (such as evaluation fees) that are not integral to a program of study at an eligible educational institution;
administrative penalties incurred when a student withdraws from a program or an institution;
the cost of books (other than books, compact discs, or similar material included in the cost of a correspondence course when the student is enrolled in such a course given by an eligible educational institution in Canada); and
courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.
Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time or part-time students.
At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where, as is often the case, a student doesn’t have tax payable for the year, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent, or grandparent.
Personal and living expenses
While the cost of living, whether in a student residence or off campus, can be significant, there is no federal deduction or credit provided for such expenses. Such costs are characterized as personal and living expenses, for which no tax deduction or credit has ever been allowed.
Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances.
Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while all interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.
It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution to finance education costs) will never be eligible for the student loan interest tax credit.
As explained in the Canada Revenue Agency publication on the subject: “[I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.
Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest tax credit on that borrowing in future years.
Credits withdrawn but available for carryforward
Formerly, post-secondary students were able to claim an education tax credit and the textbook tax credit. Both such credits were, unfortunately, eliminated as of the end of 2016. It’s important to remember, however, that where education and textbook credits were earned but not claimed in years before 2017 they are still available to be claimed by the student as carryover credits in any subsequent tax year.
Other credits and deductions
There are, as well, a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary students (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide, entitled Students and Income Tax, is available on the CRA website at http://www.cra-arc.gc.ca/E/pub/tg/p105/README.html.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.