Most of us pursue post-secondary education to improve our skill set in hopes of landing a good job or successfully starting our own venture. A lot of time, effort, and money is poured into this education period and in the same period, we often have little to no earnings. Fortunately, the government understands our predicament and gives us a way to sort out this imbalance: The Tuition Tax Credit.
What is the Tuition Tax Credit?
The tuition tax credit is a tax credit that applies to your tax bill to reduce the amount you have to pay in taxes.
The tax credit accounts for the time and money you spent on your education and regards it as an investment into your future income. Therefore, if you’ve attended a post-secondary education, you’re likely eligible for the tuition tax credit.
The tax credit is generated based on the tuition fees of your post-secondary education and applies to your federal tax bill as well as your provincial tax bill. The tax credit is calculated by multiplying the eligible tuition fees by the appropriate tax rate. This will give you a federal tax credit and a provincial tax credit based on their respective tax rates.
What are the Eligibility Requirements?
The eligibility requirements are quite simple and straightforward, you must be 16 years of age or older by the end of the year, and be enrolled in a course that charges more than $100 in fees. That’s it! If you fulfill these requirements, you’re eligible for the tuition tax credit.
Let’s move on to the finer points.
- The course is not required to be at the post-secondary level, any course that helps you obtain or improve skills for an occupation will add to your tuition tax credit.
- The tax credit applies to both full-time students and part-time students.
- The tax credit applies to students studying abroad (outside Canada) on a full-time basis.
What is Excluded from the Tuition Tax Credit?
There are some cases in which your tuition fee is not eligible for the tax credit. If your fee was paid on your behalf or reimbursed to you, it won’t count towards your tax credit.
This includes cases where your fee is covered by a parent’s employer as part of an allowance not included in income. It also includes federal or government programs that reimburse or cover your fees.
In general, if your fees were covered for you and that amount was not taken from your family’s income or savings (or is from an amount not registered as income) it will not be included in your tuition tax credit.
However, if you have earned a scholarship that awards you with reimbursement or covers the fees, it will be eligible and the fees will be counted towards your tuition tax credit. The scholarship award can be from your college, university, or even your parent’s employer.
What do you need to Claim the Tuition Tax Credit?
To claim the tuition tax credit, you will need one of the following forms from your college, university, or institution.
For Institutes in Canada
Form T2202: an education and textbooks amount certificate
For Institutes outside Canada
Form TL11A: an education and textbooks amount certificate
For Institutes outside Canada for a deemed resident of Canada
Form TL11D: a tuition fees certificate
For Commuters to the United States
Form TL11C: an education and textbooks amount certificate
What about Excess Tuition Credits?
What happens if your tuition tax credit is greater than your tax bill? What can you do? It’s simple really. You can either transfer the tax credits to your family ( in general; parents, spouse, grandparents) or carry forward them for next year’s use.
If you want to transfer the credits to your family, there are a few things you should know. The maximum limit of credit transfer is $5000 and you can only transfer to the following members of your family.
- Your Parents
- Your Grand Parents
- Your Spouse
- Your Spouse’s Parents
- Your Spouse’s GrandParents
The second option is fairly easy. Once you have used your tax credit and reduced the payable tax to zero, the remaining tax credit will be carried forward if not transferred. However, it is important to note that once your tax credit is carried forward, it cannot be transferred in any future year and can only be used by you. You can carry forward your tuition credits until those are fully claimed.
Remember:
- Don’t forget to provide the tuition credit information to your accountant while filing your personal tax return. If you miss doing so, you cannot claim past year credits in the next tax return. You will have to re-file or make an amendment to the tax year, the tuition credits relate.
- You should make the tuition tax credit a part of your feasibility while deciding on spending money on education or skill improvement.