Back to SchoolóTax Breaks Offset Expensive Season

September is Back to School Month and aside from reviewing tax breaks for tuition, education and textbook amounts, students and their supporting individuals will want to think about withdrawals from an RRSP under the Lifelong Learning Plan as an alternative to going into debt to fund school costs. Here's what you need to know:

Using the RRSP for School Funding:

The Lifelong Learning Plan allows a taxpayer to withdraw (under S. 146.02) up to $20,000 of funds saved within their Registered Retirement Savings Plan (RRSP) for the purpose of furthering their education or the education of their spouse or common-law partner, on a completely tax-free basis. The withdrawal limit is $10,000 per year. No tax will be withheld on such withdrawals. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals as long as the total does not exceed $20,000. Funds are withdrawn from the RRSP using Form RC96 Lifelong Learning Plan (LLP) Request to withdraw funds from an RRSP.

The funds must be repaid back into the RRSP, over a period not exceeding 10 years, beginning in the fifth calendar year after the withdrawal or the year after the student ceases to be a full-time student for at least three months in the year, whichever comes first. Amounts which are due and not repaid are included in the taxpayer's income under S. 56(1)(h.2) in the year they are due.

Taxpayers are free to participate in the plan again once they have repaid the amount borrowed.

Using the Tuition Fee Amount:

Here is a review of the basic definitions for non-refundable credits and what qualifies for the tuition credit and education amounts:

DEFINITIONS IN BRIEF: Non-refundable tax credits available to post-secondary students and their supporting individuals include the following:

• Amounts for Tuition: Post-secondary students may claim the tuition amount under S.118.5 of the Income Tax Act.
• Amounts for Education Costs: A monthly education amount available under S.118.6
• Amounts for Textbooks: A monthly credit for such costs is specified under S. 118.6(2.1).
• Transfers to Supporting Individuals: Students must claim the above amounts first on their return. If the student is not taxable, the claim for the tuition, textbook and education amounts may be transferred from a student to the supporting individual under S.118.81 or may be carried forward to future years for use by the student.

NOTE: KNOWLEDGE BUREAU SELF STUDY COURSES QUALIFY!

Next Time: Which tuition fees are eligible?