How to Get the Most of Tax Advantages in College

by admin on November 17, 2010

Government support for persons enrolled in higher educational establishments is generally provided by the introduction of a program for direct funding of the concerned individuals, or by allowing the student to pay lower taxes. In Canada, both approaches are applied by the federal and provincial governments, with the aim of providing financial assistance to college students. The student loan programs and the grants of the Canada Millennium Scholarship Foundation have gained public recognition. Tuition and education tax credits are one of the most important forms of government support available to post-secondary students in Canada. Although they are estimated at about $1.8 billion annually, funding is underused and does not stimulate young people to study at colleges.

Eligible tuition fees that could be claimed include the following: admission fees, examination and application fees, charges for using library facilities or laboratories, charges for certificate, diploma, or degree. Non-eligible for financial assistance are medical expenses, transportation and parking, meals, students’ association fees, goods such as a laptop, microscope, academic gown, etc.

Two principal tax credits are available to students. The tuition fee tax credit was introduced in 1961 and is applicable to federal and provincial income taxes. Post-secondary students have been allowed to claim a reduction in taxes for paid tuition fees. At present, this is also a form of tax credit. Information for amounts that can be claimed under this credit is issued on an annual basis by the universities and colleges. As the value of the credit increases with tuition fees, students enrolled in programs with higher tuition fees receive a greater credit.

The education tax credit is available in all provinces except for Quebec. It was introduced in 1974 and is claimed every month during which the student is enrolled in a college program. This type of credit is among the best ways in which the government assists college students and helps them pay expenses such as costs for books, accommodation, and living expenses. Full-time and part-time students could claim up to $400 and $120 per month, respectively as tuition fee tax credit. The monthly textbook tax credit is $20 for part-time students and $65 for part-time.

The majority of full-time students are not able to make full use of the tuition and education amounts during the year in which they were earned. About 60 percent of the students have an income under $10,000 and pay no tax, and another 20 percent have low income and cannot make full use of the offered credits. There are two options to get around this stumbling block. The first alternative is the transfer provision which enables students to transfer a part of the unused credits (but no more than $5,000) to their parents or spouse.

The carry-forward provision was introduced in 1997 and enables students to carry the credits forward to a future year if they cannot use the full amount in the current year. Without this provision, the credits would benefit only students with a relatively large own income during the period of their studies or those who are able to transfer the credit to their parents. With the carry-forward provision, all college students benefit almost equally from the available education and tuition amounts. For example, between 1995 and 2005, the average tuition fees in Canada went up by 43.9 percent but when the effects of tax credits are taken into consideration, the increase is only 24.7 percent.

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