It is that time of year when post-secondary students face the reality of the high cost of higher education — books, transportation, residence, food, and other expenditures must also be factored in. Fortunately, there are several tax-saving opportunities that may assist them with reducing their financial burden.
Tuition tax credit
Students may claim a federal non-refundable tax credit equal to 15 per cent of eligible tuition fees provided that the student is enrolled at a qualifying educational institution in Canada and pays the institution more than $100 in total costs.
Tuition fees paid for courses taken either online or via correspondence may also qualify for the tuition credit.
It is possible to transfer up to $5,000 in current year tuition amounts to a spouse or common-law partner, or a parent or grandparent subject to specific requirements and limitations.
Canada Training Credit
The Canada Training Credit (CTC) is a new refundable tax credit available for 2020 and later years to help working Canadians with the cost of eligible training fees.
Credit for student loan interest paid
If a student receives financial assistance from one of the federal or provincial government-sponsored programs, the interest paid on those loans could qualify for a tax credit when calculating both federal and provincial income taxes.
In addition, as part of the measures announced by the federal government in the 2021 budget, interest accrual on Canada Student Loans and Canada Apprentice Loans has been suspended from April 1, 2021, until March 31, 2023. Only interest on loans extended under government-sponsored programs will qualify for this credit. In addition, while the credit is not transferable, any unused portions can be carried forward for up to five years.
Payments from an RESP
COVID-19 income support benefits in the year are taxable and can, in combination with the amount of taxable RESP income you receive, impact the amount of income tax you may have to pay in respect of the year.
Depending on what other sources of income you have, you may want to ensure that any taxable amounts received out of your RESP do not bring your total annual net income over the $38,000 net income threshold.
Students should use up the government grant money and income accumulated in the RESP during their studies — any unused grant money will have to be repaid to the government, and any remaining unused income may be subject to higher taxes.
If you received a post-secondary scholarship, you might be exempt from having to include the funds as taxable income. Therefore, make sure you get the benefit of the scholarship exemption where appropriate.
Students may be able to deduct moving expenses when moving to attend a post-secondary educational institution full-time. To be eligible, a student needs to move at least 40 kilometres closer to the school.
A student may also be eligible to deduct moving expenses if they move a distance of at least 40 kilometres for employment, such as for a co-op placement or a summer job. In this case, eligible moving expenses may only be deducted against income earned in the year from that employment source.
Don’t miss out
The tax breaks targeted specifically to students can help relieve some financial burdens. If you are currently enrolled in college or university or plan to enrol in the future, BDO can provide additional insights on how to fund post-secondary education in the most tax-efficient manner.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. Scott works closely with his clients to understand their specific needs and adjust strategies accordingly. Scott and his team take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.