Tag Archives: deductions

How Did My Income Tax Program Use Up All of My Tuition and Education Amounts So Quickly?

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When you’re still attending college or university and not make much money it’s common to end up carrying forward large amounts of tuition and education amounts. It can look like you have tens of thousands of dollars to use to reduce your income tax payable. Yet when you start working full-time you may find the tuition and education amounts get used up way more quickly than you expect: here’s why.

A Common Mistake: Thinking Education and Tuition Amounts Reduce Your Taxes Dollar for Dollar

When you see big $$$ values in your carry forward tuition and or education amounts, you may start thinking it will be years before you have to pay any income taxes. After all, if you have $40 000 in carry forwards, and you’re only making $35 000 a year, they should last a long time, right?

Unfortunately, no.

The government loves making it SOUND like you are getting a big deduction.

So they say things like “You can write off $500 of your child’s fitness expenses!” They don’t say “And it will get you a whopping $75 off your taxes payable!” But that’s all the $500 saves you: $75 in federal tax payable.

Your Education and Tuition amounts do no reduce your taxes payable dollar for dollar.

How Does the Income Tax Math Work for the Education and Tuition Amounts?

Let’s look at an example.

Say you earned $35 000 in 2015.

According to the 2015 Ernst and Young personal tax calculator, in Ontario, with no extra deductions, that would mean you would owe about $4 820 in tax, most of which should have been deducted by your employer.

You don’t use up $4 820 of your education amounts though to reduce this tax payable to 0.

The education/tuition amounts are converted into credits at a really low percentage.

Line 23 (also called 323) on your Federal Schedule 1 is the amount of the education/tuition claim you are using up.

As you can see further down on Line 32 you apply a rate of 15% to that amount.

So to negate $1000 of tax owing, you have to use up $6 667 of your education/tuition amount.

To reduce your $4820 of tax owing to 0, it will use up $32 133 of your carried forward education and tuition amounts.

You would then get a tax refund of up to $4820 depending on the amount of tax that was with-held from your pay cheques and your other deductions and credits.

Don’t You Wish the Education and Tuition Amount WAS Applied $ for $ Against Your Taxes Owing?

If the education and tuition amounts were applied $ for $ against your taxes owing, it would be great, because it would mean the government was paying for your schooling.

Unfortunately, they are only willing to pay for 15% of your schooling. (Plus a bit more if your province gives you a tax break on your provincial taxes.)

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Did you get a great tax refund the first year you worked after finishing college or university? Don’t you wish you could get a refund like that again? Please share your views with a comment.

Can I Claim a Charitable Tax Deduction Credit for a Donation Made Outside of Canada?

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We help a lot of Canadian charities because we were both raised to believe that if you have you should share. One thing we quickly learned is that we can donate more to Canadian charities at the same total cost to us if we claim the donation on our income taxes. We also donate to some international charities. (And yes, despite what Pearson airport and Canada Post believe, the USA is actually *international!*) In the past, we haven’t bothered too much with the receipts for those foreign donations because we believed that they were not necessary for filing our Canadian income taxes. When I read the tax forms more carefully this year, though, I was left wondering if we could claim donations made outside of Canada to get a tax deduction.

What the CRA Says on Schedule 9 Donations and Gifts

This was the wording on Schedule 9 that caught my eye

“Donations made to the United Nations, its agencies, and certain charitable organizations outside Canada” (line 334)

The amount you enter on this new line 334 is added directly into your “Total eligible amount of charitable donations and government gifts” just like your gifts to registered Canadian charities.

So can you donate to international charities and claim it on your Canadian taxes? Which charitable organizations outside Canada are included in “certain?”

Which are the “Certain Charitable Organizations Outside Canada” and Which Aren’t?

I went hunting on the CRA website to find out if the health and children’s charities we donate to internationally are “claimable.” Here’s what I found:

Did the Queen Give it the Royal Nod on Behalf of Canada?

I found at http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/gftsfrmhrmjsty-lst-eng.html
that

“A listed charitable organization outside Canada that has received a gift from Her Majesty in right of Canada is a qualified donee until 24 months from the date of the gift.”

A list of which gifts Queen Elizabeth II has made within the required time period is provided. For the 2012 taxation year, these include

  • Education Africa, in South Africa
  • The Rhodes Trust, in the United Kingdom
  • the Aga Khan Foundation, in Switzerland
  • and several others

The list is certainly not long!

Did One of Our Politicians Go to Uni There

At http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/prscrbdnvrsts-lst-eng.html there is a list of international universities to which you can donate and claim the expense on your Schedule 9.

(Donations to most Canadian universities are also eligible. You can check by looking up the name of the university on the CRA website at http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html.)

So if you want to contribute to the University of Tartu, rest assured you can get back a portion of your contribution. (or donate more at no additional total cost to yourself) Or to the Maharishi University of Management, which I’m sure you know is in Iowa.

Gifts to the United Nations and Its Agencies Qualify Too

I could not find a specific list of United Nations agencies on the CRA website, so you might have to contact the CRA to determine if an agency is approved.

What Other International Gifts Can be Claimed on Schedule 9?

At this time, the UN and its agencies, foreign universities, and the organizations favoured by Queen Elizabeth II on Canada’s behalf are the only ones qualified. So our donations to help children in other countries and with world health issues are not eligible.

Still, if you did donate to one of those select few organizations, you should be sure to report your claim on Schedule 9. Assuming you have taxes to pay, you will be able to reduce them using the associated credit. Then you can use the money you didn’t have to pay in taxes to contribute more to the same or another charitable effort, at no additional total cost to yourself!

Do You Work Primarily in the USA or Internationally?

This information is intended for average Canadians who work in Canada, generally donate in Canada and pay taxes only in Canada. It appears that there may some other eligible donations that apply only in very specific circumstances, particularly for Canadians who work in the US (or other countries) and are paid in US dollars (or other currencies). If that describes you, you may want to talk to an accountant about which contributions to US (or international) charities you may be able to claim.

If you read the comments, below, you will find a very useful and detailed description of one case in which a taxpayer could claim donations made to US charities based on income earned in US dollars.

I don’t feel qualified to judge which international (including American) charities would qualify for this tax break in Canada. I’d recommend you look for a tax accountant who specializes in Canadians working abroad if you have a substantial donation that you wish to claim. (It’s possible that in that case you should be getting advance authorization from the CRA before submitting the claim.)

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