Tuition, Education, Textbook and Student Loan Tax Credit

There are quite a few University/College students who email me with questions regarding personal finance. The most typical question usually regards the tax advantages of being a student.  The good news is that there are quite a few tax credits for students, the bad news is that most students don’t make enough income to take advantage of them (but can be carried forward/transferred).

It’s been quite a few years since I’ve been in University, but even as a young man with very little income, I thought about various tax strategies.  One of which was how to best use the tax credits given to students.  What tax credits? Students are offered a tuition tax credit, student loan interest tax credit, an education amount, and a textbook tax credit.

One thing to note is the difference between a tax credit and tax deduction. A (non refundable) tax credit will reduce your taxes owning whereas a tax deduction will reduce your taxable income. A non-refundable tax credit will typically give you 15% (lowest federal tax bracket) of the amount which is sometimes matched by the province. A deduction reduces your taxable income, thus your taxes payable when you file.

Having said that, lets get to the specific tax credits for students:

Tuition Tax Credit

This is perhaps the largest tax break where students will get a non-refundable tax credit (15%) on tuition fees at qualifying institutions.  How does this work?  If the students tuition for the year was $10,000, then he/she will be able to reduce their income tax by $1,500.  If the student hasn’t made any income throughout the year thus no taxes payable, the amount can be carried forward indefinitely.

Education Amount

In addition to the tuition tax credit, $400 can be claimed for each month of full time study as the education amount.  Part time students can claim $120/month providing the education is at least 3 weeks long and 12 hours per month.  Employees can claim the education amount providing that the tuition is not reimbursed by employer.

Remember though that the amounts above are what’s eligible to be claimed, and not what you get back.  So if the student is full time for the year, they can claim $4,800 ($400*12 months) which results in the amount $720 refunded ($4,800*15%).

Textbook Tax Credit

Students eligible for the education amount can also claim the textbook tax credit.  The benefits are a non-refundable tax credit in the tune of $65/month for those who qualify for the full time education amount and $20/month for part time.  As with the education amount, the tax credit is worth 15% of the total claimed.  Therefore, students can get back $117 / year (15% of $65*12 months) for full time or $36 /year for part time.  My calculations are assuming that the student is in school year around.

Student Loan Tax Credit

If you were lucky, you didn’t have to experience the pain of obtaining student loans.  I remember back when my wife had to get student loans, the worst being the long, all day wait, lineups.  The bright side being is that a student loan is like an investment loan for higher future income for which I am grateful.  Tax wise, a student loan is similar to an investment loan.  But instead of the interest on the loan being tax deductible, there is a federal tax credit offered (15%).  So if you paid $1,000 in student loan interest for the year, then you can $150 back on your income tax paid in already.

Note that every province has different incentives/rules regarding student loans.  For example, in 2008, NL announced the elimination of NL student loan interest.

Transferring Unused Credits

As I mentioned above, the typical student does not earn much income therefore, very few pay income tax.  If that is the case, the tax credits are useless and should be carried forward to a future year.  In addition to the carry forward, there is the option of transferring unused credits to a spouse/parent/grandparent.   If the student is not able to use the tuition, education, or textbook tax credits in the tax year, then up to $750 in tax credits can be transferred.  Note though, any carried forward amount cannot be transferred.

Final Thoughts

There are quite a few tax advantages of being the student.  We took advantage of these credits by accumulating them while we were students and carrying them forward to future, higher income, years.  Did you take advantage of student tax credits?

Reference: KPMG Tax Planning 2009

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Maureen
4 years ago

My grandson goes to a college in Ontario and doesn’t have a tax. Income. He is transferring half of his education amts to his mother. He has approx 10,000 to carry forward over the last 2 years. Can he use any left over for when he dies have a tax, income? Say in 2 or 3 years? And can it be prorated over a few years while working? Thanks

Kira
8 years ago

Hello,
This is all really great information and I notice you’ve been answering some questions, I was wondering if I could ask one, too: Is it “better” to transfer tuition tax credits to a parent/grandparent or to carry them forward? By “better” I mean what would be the best way to get the most money out of the tax credits in the end.

Tina Worth
5 years ago
Reply to  Kira

It really doesn’t matter because now or later, and no matter the bracket of the person who claims it, the value of the credit will be the same. Just make sure that if you are not being supported by the person who is claiming the credit that they pay the value of the credit to you. And then the only difference between now and later is that if you get it now the money could be earning interest or reducing the amount you need to borrow next year.

Luke
9 years ago

Hello,
I have been living in Korea for the last 3 years. I am not sure as of yet if I am a non resident for these years or not. I was not deemed one as of yet. I don’t own property or have anything in Canada, nor do I use medical or have a license there. I do have a bank account and credit card though.

I’m pretty sure I am paying tax in Korea, as we aren’t exempt from paying it, I have one paper that for sure says I paid last year, but none for the other years. It’s a little hard to obtain my first years tax filings because its in a different city and they don’t really speak English at my school. At any rate, I like most students didn’t use all my tax credit, does it ever expire, if I did have to pay tax in Canada at some point can I reduce my fees via my school credit or does it vanish after a time, I thought I remembered reading that you couldn’t use them after 4 years of leaving school…

I haven’t paid taxes in Canada since I’ve been here, cause really I wasn’t sure if I was suppose to or not. Also I didn’t want to pay them, if I was exempt. Your opinion would be useful. Should I file for the years I missed or wait till I eventually go back to Canada and sort it out and see if I was a non resident.

Bonnie
10 years ago

What is, if there is, a maximum amount that can be transfered to a parent per tax year.

Bonnie

btilk
10 years ago

If I pay off my Student Loan in one lump sum this January, can i get money back when I file my taxes for 2010 or do I have to wait until next year?

flatlander
10 years ago

What is the authority that disqualifies the tuition tax credit if the employer reimburses the tuition? Isn’t this credit based on general tax policy that supports higher education? Why should it matter whether the tuition was reimbursed? A tuition payment from an employer is merely a taxable benefit, it shouldn’t disqualify the student for tax credits.

Justin
11 years ago

Hypothetical scenario:
– I have $10,000 invested in equities.
– I then take out a $10,000 student line of credit and use it to pay for tuition.

Any thoughts about whether I would be able to claim the interest payments from the get go as tax deductible under this situation?

I think the irrefutable way of insuring interest payments are tax deductible would be to first liquidate the $10,000 invested. Then use those proceeds to pay off the line of credit. Next, borrow $10,000 from the line of credit again and use the loan to repurchase your original investments. But all this just seems very wasteful to me.