Unfortunately, the cost of such an education is quite prohibitive for many students in Canada. The cost of a good education is always high, making it difficult for people with limited income. Fortunately, there is something known as the Tuition Tax Credit that many qualifying students can claim to reduce their taxable income, effectively saving money.
To help you understand more about Tuition Tax Credit, here is all that you need to know about it:
What is a Tuition Tax Credit?
The Tuition Tax Credit is a tax break offered by the CRA (Canada Revenue Agency) to Canadian students 16 years of age and older. This tax break allows students enrolled in post-secondary education to deduct their tuition expenses from their taxable income. The CRA designed this policy to make education more accessible to Canadians despite their economic circumstances.
Who is eligible for Tuition Tax Credit?
Canadian students who enroll in a full-time or part-time qualifying post-secondary education in Canada are eligible for the tuition tax credit. However, students who continue their post-secondary studies outside of Canada could also be eligible, as long as their study period lasts at least three consecutive weeks for each course within a program of study and is full-time. Otherwise, the student may not claim the tax credit.
That said, there are a few factors that can make a student ineligible for the Tuition Tax Credit. For instance, if the student is employed and the employer reimburses the tuition in any way, the student will not be able to claim the tax credit. If the employer, however, includes the tuition amount into the student’s earnings, the student could still be eligible.
How do I calculate and use Tuition Tax Credits?
Calculating the Tuition Tax Credit is reasonably straightforward. All you need to do is to combine all eligible tuition fees into a total sum and multiply the amount with the lowest federal tax rate for the current taxation year. Note that this tax rate will vary depending on where you live and how much you declare as income, which affects your income bracket.
Some qualifying educational institutions will provide a T2202 slip which will be reported on your personal tax return.
When claiming Tuition Tax Credits, it is always important to remember that it is a non-refundable credit. If the tuition amount is much higher than the tax you owe, you will not get a refund on the difference. But you can transfer the remaining balance of any tuition tax credits to a partner, parent, or grandparent. Any unused tuition tax credits can also be carried forward to future years.
Tuition Tax Credits have allowed students to save money by reducing the taxes they owe to the government. However, calculating just how many credits you may have can be quite confusing, especially if this is your first time. If you are still confused about optimizing the use of your Tuition Tax Credits, do not be afraid to reach out to accounting professionals. They will answer all your questions about Tuition Tax Credits and will do their best to maximize your tax refund given your situation.
Blueprint Accounting, Inc. is a cloud accounting firm offering small business bookkeeping, corporate tax services, and accounting services for anyone in need of accounting assistance. We can help you best understand how to utilize the Tuition Tax Credit to your advantage by providing a tailored-to-you, holistic, tax planning approach. If you are looking for accounting services in Canada to help you with your Tuition Tax Credits, contact us today!