Post secondary education doesn’t come cheap. Fortunately Canada Revenue Agency (CRA) has some favourable tax policy to help mitigate the financial sting.
Tuition paid is reported on form T2202a, as is the number of months of part-time and full-time school that calendar year.
There is a book allowance of $20/m or $65/m based on part-time or full-time schooling, respectively.
Although this standard flat rate may not seem fair considering the wide variance in cost of textbooks for different programs, at least there is no need to retain receipts for books and supplies.
There is also an allowable deduction for months at school of $120/m part-time and $400 full-time, even if income is earned during these months.
However, if education grants were paid during these months, this deduction is not allowed. This flat rate attempts to acknowledge the cost of living for a student regardless of where he or she lives, even at home – apparently fairness is not the priority. Again, no receipts have to be used to support this deduction so making the claim is simplified.
If a student has earned income during the year and consequently has tax liability, the student has to use a portion of the non-refundable tax credit to reduce current tax liability to zero. The remainder of the claim is carried forward to a point in time that income warrants its use.
Over the years this can become a substantial value.
If a student does not have tax liability in any particular year, the student still must file the tuition, education and textbook claim. It is not possible to save up the T2202a claims from a number of years and make one single claim later.
If a student hasn’t filed personal tax returns in the past, the claim is not forfeited. A T1 adjustment can be filed for each year missed.
Another reason for a student to file every year is that up to $5,000 can be transferred to a parent or grandparent using Schedule 11, but only for the year in which the education expenses were incurred. In other words, amounts carried forward by the student cannot be transferred in future years to a parent – a fact often overlooked by parents.
Before allowing a transfer, CRA not only requires the student to file a return and make the claim, but also CRA requires the student to first use as much of the credit as it takes to reduce his or her tax liability to zero.
In addition, students can claim interest on government student loans. An official statement will be issued to the student. By the way, this does not include interest on a personal loan or line of credit.
As well, there may be cause to claim moving, childcare, and public transit expenses. These expenses however, are not included in the amount that can be transferred to a parent.
In the end, despite an education claim adding up to a substantial deduction, it still may only represent a fraction of the true cost.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.