Tuition, Education and Textbook Credits: Use Them before You Lose Them

Hard to believe, but it’s back to school time and parents and students are already busy preparing for fall classes. Thank goodness there is tax relief for the expensive tuition fees and textbooks. But some of them will soon be lost, starting as soon as January 1, 2017. Are you up to speed on the changes?

After the last federal budget, there’s both good news and bad news in store for parents and students in the upcoming academic year.

First the good news: A combo of three great tax credits can be claimed on one line of the 2016 tax return—a lovely surprise for first-year students of post-secondary institutions, including Knowledge Bureau. This is called the Tuition, Education and Textbook Amount, and it’s important that in making the claim the information is taken from form T2202A, available from the educational institute.

Now the bad news: This three-part, non-refundable tax credit will end in 2016, leaving us with a one-part credit, the Tuition Amount, starting January 1, 2017. Unfortunately, the Education and Textbook amount, which was based on the time the student was in full-time or part-time attendance at school, will be eliminated.  However, unused amounts carried forward from 2016 or earlier may still be claimed in 2017 and later years.

If the student does not claim the full amount of the available tax credit, up to $5000 of unused amounts can be transferred to their spouse, their parents, or another supporting person to claim on the transferee’s tax return, but only under certain circumstances. Here are some additional rules to take note of:

• First, the student must make the claim for these credits on his or her tax return first. If the student is not taxable, or if the full amounts are not needed to reduce taxable income, the remaining credit may be transferred from a student to the supporting individual. A maximum transfer of $5000 minus the amount claimed by the student is allowed. It helps to use an RRSP to reduce the student’s net income, in order to facilitate a transfer to a parent. However, the student must have filed returns in the past to build up sufficient RRSP contribution room.
• Remember that the transferrable amounts from student to parent or other supporting individual will shrink in 2017, so some extra planning is in order for these taxpayers, too. Again, consider additional RRSP contributions to get the best tax results.
• The student can also decide not to transfer the amount at all and instead carry any unused amount forward to be used in future years to offset income taxes payable then.

Not sure what to do? Speak to a DFA-Tax Services Specialist™when doing your education planning. Also, consider trying the Knowledge Bureau’s Income Tax Estimator to determine income and transfer levels for students and their supporting individuals.

Evelyn Jacks is President of Knowledge Bureau and one of Canada’s most prolific financial authors of 52 books, including her most recent, Family Tax Essentials: How to Build a Wealth Purpose with a Tax Strategy.

©2016 Knowledge Bureau Inc. All Rights Reserved.

Refer a Friend	Research	Calculators	Course Trials