Education Tax Tips
Some tax-related information for students who are pursuing post-secondary studies:
Income received related to education
Students may earn income from various sources. Following is a brief description of common sources of income received by students, along with their tax treatments:
- Student loans – not included in income
- Loans from employers – if forgivable on the condition the employee returns to work, the loan amount is not included in income when received. If your employer pays your fees directly, you must include that amount as a taxable benefit on your return, but remember to claim the tuition fees eligible for credit! Likewise, if you are reimbursed for the fees, you must include this amount in income when received.
- RRSP withdrawals under the Life-long learning provisions – not taxable at withdrawal but repayable after studies completed.
- Scholarships, fellowships and bursaries – amounts over $3,000 are included in income, if you are eligible for the education amount.
- Research grants – the net amount is included in income, but you cannot create a loss. Expenses are limited to travel costs, fees paid to assistants and costs for equipment or laboratory space.
- RESPs – the designated portion of payments from an RESP plan are included in the beneficiary’s income when received.
Common deductions for students
You can deduct your moving expenses to school if you receive income from scholarships, fellowships, bursaries, prizes and research grants or if you earn employment or self-employment income while at school. This applies to students studying in Canada or abroad and to foreign students studying in Canada. You can deduct moving expenses back home within Canada if you earn employment or self-employment income there. To qualify, your new home must be at least 40 kilometres closer to the new school or place of work than your previous home was.
Child care expenses
If you incur child care expenses while your spouse works and you go to school, the expenses may be claimed by your working spouse. Eligible children must be under 16 or have a mental or physical infirmity.
Non-refundable tax credits available for students
Various education amounts are deductible as tax credits, not tax deductions. Therefore, their tax value is equal to approximately 22%. These credits include the following:
Interest on student loans
Only the student can claim interest paid, although the interest does not need to be paid by the student. Any related credits not utilized in a particular year can be carried forward for up to five years.
Tuition fees paid that are more than $100 per school per calendar year are eligible for a credit. The amount you paid must coincide with courses that were actually taken in the calendar year. The student must be 16 or older.
You can claim:
- Fees for courses at a post-secondary educational institution in Canada
- Fees to an educational institution in Canada certified by the Minister of Human Resources Development for courses to develop or improve skills in an occupation
- Fees for courses at a post-secondary educational institution in the U.S. as long as you lived in Canada and commuted to the school, or
- Fees if you are a full-time student outside Canada for courses that were at least 13 consecutive weeks long, and that will lead to a degree (this does not include courses taken through distance learning programs)
You cannot claim:
- Tuition fees paid or reimbursed by your or your parent’s employer, where the amount is not included in your or your parent’s income
- Tuition fees paid by a federal, provincial, or territorial job training program where the amount is not included in your income and
- Tuition fees paid (or eligible to be paid) under a federal program to help athletes, where the payment or reimbursement has not been included in your income.
Eligible tuition fees include:
- Admission fees
- Charges for the use of library or laboratory facilities
- Examination fees
- Application fees (but only if the student later enrolls in the institution)
- Charges for a certificate, diploma, or degree
- Mandatory computer service fees
- Academic fees
- The cost of any books that are included in the total fees for a correspondence course and
- Fees, such as athletic and health services fees, paid to a university, college, or other educational institution in addition to your tuition for post-secondary courses, when such fees are required to be paid by all students. If not all students are required to pay them, then amounts eligible are limited to $250.
You cannot claim the following as tuition fees:
- Students’ association fees
- Medical care
- Transportation and parking
- Meals and lodging
- Goods of lasting value that you will keep, such as a computer, microscope, uniform, or an academic gown
- Initiation or entrance fees to a professional organization or
- Cost of books (other than books that are included in the total fees for a correspondence course)
Education credit amounts
You can claim a full-time education amount for each month that you are enrolled in a qualifying educational program at a designated educational institution on a:
- Full-time basis
- Part-time basis and you can claim the disability amount, or
- Part-time basis because of mental or physical impairment, but do not qualify for the disability amount
A qualifying educational program must last at least 3 consecutive weeks for a minimum of 10 hours of instruction each week. You can claim a part-time education amount for each month you are enrolled at a designated educational institution in a part-time program that lasts at least 3 consecutive weeks and requires at least 12 hours of instruction each month.
You cannot claim the education amount if you:
- Received a grant or were reimbursed for the cost of your courses, other than by award money received
- Received a benefit as part of a program (such as free meals and lodging from a nursing school)
- Received a salary or wages while taking a course related to your job (such as if you were employed by an accounting firm and you took courses leading to an accounting degree) or
- Received an allowance for a program such as a training allowance
Transferring and carrying forward tuition and education amounts
The tuition and education amounts first must be claimed on the student’s own return. If these credits are not needed in whole or in part to bring the student’s tax liability to nil, then the student either can carry forward the unused amount indefinitely or transfer it to a spouse, parent or grandparent (this includes in-laws).
The student need not be claimed as a dependant by the parent or grandparent transferee, but if the spouse claims the student as a dependant, no transfer can be made to the parent or grandparent. Only one person can be designated in the transfer.
The amount able to be transferred must be designated by the student and is limited to:
- $5,000 and
- the lesser of the sum of student’s total tuition fees and education amounts minus
- the amount needed to bring the student’s tax liability to nil
Watch that you don’t over designate a transfer – if the transferee cannot utilize all of the tuition and education amounts either, the amounts will be wasted! Transferees cannot carry amounts forward. Once the student chooses to carry forward an amount, the amount cannot be transferred in a future year: only the student can use the claim then and it must be used in the earliest year possible. The system basically works on a “first-in-first-out” basis, meaning that old carryforward amounts must be claimed before new carryforward amounts are calculated.
If the student has sufficient taxable income to use the education credits, the tax break for education costs is the same for the student or a transferee; therefore there is no advantage to transferring costs to another party.
Lastly, sometimes the transferee will calculate the tax break enjoyed from the transferred credits and reimburse this amount to the student.