Tag Archives: federal taxes

Should I Wait to Claim My Tuition Fees Until I’m Earning More Money?

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This question appears often on tax and finance chat boards in March. Tax credits and deductions are a bit bewildering the first time a person uses them. Some, like the RRSP deduction, have more value if they are used when a person is in a high tax bracket. Others create the exact same savings whether they are claimed by a person in the lowest tax bracket or in the highest tax bracket. So should someone wait to claim their tuition, education and textbook amount until they are in a higher tax bracket when they are earning more money per year?

No.

The amount you can claim because of tuition, education and textbooks will create the exact same dollar savings whenever you claim it.

The tuition, education and textbook amounts reduce your actual tax payable. So if you earned $20 000 or $200 000 or even $2 000 000 last year your tuition costs will give you back the exact same amount of money.

The amount you can claim for tuition fees, textbooks and other monthly education expenses does not reduce your taxable income. It only decreases your tax payable.

Is The Question Even Relevant?

In fact, the question isn’t even worth asking:

The Canada Revenue Agency gives you no choice, so the question is irrelevant. The tuition costs and education amounts are automatically applied to reduce your federal tax payable to 0.

If your tuition and education amounts are larger than what you need to reduce your tax to 0, then they are automatically carried forward and applied against your next income tax return. They continue to be carried forward and applied until they are used up.

The Rules

You must first claim your tuition and education and textbook amounts on your own tax return.

By completing Schedule 11, either by hand yourself or using a tax computer program, you will see if you have any tuition, education and textbook amounts left over after you have reduced your tax payable to zero.

If you have not used up all of your tuition, education and textbook amounts, you can transfer ($5000-the amount you did use) to one of the following people for them to use to reduce their tax payable for this tax year:

  • your spouse
  • your common-law partner
  • your parent
  • your spouse’s parent
  • your common-law partner’s parent
  • your grandparent
  • your spouse’s grandparent
  • your common-law partner’s grandparent

If there is still more tuition, education and textbook amount left, then it will be automatically carried forward for you (and only you) to use to reduce your tax payable in future years.
To make a transfer the student must

  • complete Schedule 11
  • complete the transfer part of the T2202A (or other) form that was received from the school

What If I Don’t Tell the CRA About My Tuition Costs Until Later?

Don’t waste your time trying to game the CRA. You’ll lose and it gives you no benefit anyway. No matter when you apply your tuition and education amounts you get the exact same number of $$ back.

Getting your money back in the future actually results in you losing money (if there is even the slightest inflation in prices each year) because $1 in the future is worth slightly less than $1 now. (I guess if there was deflation that might not be true, but we haven’t experienced deflation in my lifetime.)

In most cases, your tuition costs are reported on a T slip called the T2202A. You get a copy from your school. The CRA *also* gets a copy. Eventually, they will match the slip to your account and they will know which year you earned the right to claim the reduction in tax payable. They will not necessarily immediately apply it and send you a refund cheque, however. They don’t give away money if they don’t have to. After all, you might not have claimed your savings because you generously wanted to give the government some of your money just out of the kindness of your heart.

You can apply to properly claim that amount against the year it should first have been reported and claimed by filing a T1-ADJ. You will likely get some interest as well as your proper refund when it is applied. The interest must be claimed as new income on your next tax return.

(My relative did this when he discovered he had forgotten to claim tuition for a part-time continuing education college course until three years after the fact. He received $5 in interest and had to report that amount and get taxed on it the next year. It was worth it, though, because he received over $100 in a tax refund which of course did not have any tax owing on it.)

How Else Can I Use Up My Education Amount and Tuition Credit?

If when you report your tuition and education amounts for the year you have an unused amount, you can also transfer some of that amount, up to ($5 000 – the amount you used), to an acceptable person such as your parent, your spouse or common-law partner, or grandparent. They can then use the value to reduce their own tax payable.

(This is based on the belief or hope that your parent, spouse or grandparent may be helping to pay for your education and therefore deserves to get some of the tax relief benefit.)

You do not HAVE to transfer any amount. Also, you can only transfer up to the limit.
If there is still more unused value it will be carried forward for you to use in the future. Unfortunately, you can’t transfer any of it in the future to someone else.

(If you pay additional tuition and continue your education the next year, however, you can transfer some of the newly earned credit, just not any of the carried-forward amount.)

My Company Paid for My Tuition. Can I Claim Anything?

Generally if you were working and your company paid for your tuition costs you cannot claim the tuition cost or the part-time or full-time monthly educational amounts. There is one exception: if your employer paid for the tuition but then reported that amount as part of your income. In that case, you need to check with your employer directly about whether there is any amount that you can claim.

The same rules apply if your parent’s employer paid your costs.

What If I Forgot To Report or Claim my Tuition, Education or Textbook Amounts In the Past?

You can’t just report these amounts on your current return. You have to file an adjustment to the return for the year you should have claimed the amounts.

For example, if you went to college in 2012 and forgot to report the amounts on your T2202A, you must file a T1-ADJ for 2012 to report the amounts. You can do this quite easily online if you have a Service Canada My Account.

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Did you feel a little flutter of alarm the first time you had to claim your education expenses? Do you think the CRA should increase the textbook amount? Please share your views with a comment.

Does GenuTax Standard Free Software Calculate the New Family Tax Cut Income Splitting Reduction?

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On our 2014 taxes there is a new credit to reduce the tax payable by a 2-parent family with children under the age of 18. The maximum saving is $2 000 and it’s calculated based on parents “splitting” up to $50 000 of income on their federal tax calculations. The math is done on a new 2 page schedule, Schedule 1-A. I checked to see if GenuTax Standard 2014 would automatically calculate and apply this new benefit to a tax return for a married couple with young children, like mine.

Did GenuTax Standard Calculate the Family Tax Cut For Me?

Yes.

Before calculating my own 2014 tax return, I ran a test for a married couple with 2 children, 8 and 19, filing their taxes.
During the Interview process, I clicked on the button “Prepare Returns Together.”

Later into the interview, I reached the Family Tax Cut window. It said:
“Do you or your spouse or common-law partner wish to claim the family tax cut for 2014?
“The family tax cut is a non-refundable credit that could save you or your spouse or common-law partner up to $2000.
“To be able to claim this tax credit, you must have at least one child that ordinarily lived with you or your spouse or common-law partner throughout 2014. The credit is calculated based on the net reduction to your and your spouse or common-law partner’s combined federal taxes if up to $50 000 in taxable income was transferred from the individual with the higher taxable income to his or her spouse or common-law partner. See Help for more information”

And it asks you to select the answer

  • Yes
  • No

I selected Yes.

Still further into the Interview section, after entering income information etc. I reached the
Claim for the Family Tax Cut window. It said:
“The family tax cut that may be claimed is $X,XXX.00. Either you or your spouse or common-law partner may make this claim.
“Which spouse or common-law partner is claiming the family tax cut on their
tax return for 2014”

And it asked you to select the answer

  • Wife
  • Husband

(Actually, it provides their names based on what you entered earlier in the interview. It also states the actual amount of the tax cut that it has calculated, such as $714.37.)

By selecting the right person, the income tax owed by that person was reduced properly by the Family Tax Cut amount.

I ran a variety of cases for fun, to see what would happen.

  • For a very low income family ($36,000 combined) the program advises that there is no Family Tax Cut saving to be applied.
  • At about $55 000 in total family income, earned mostly by one person, a small family tax cut of several hundred dollars is available.
  • At about $125 000 earned only by one of the couple, the maximum family tax cut of about $2 000 is available.

The actual amount depends on the taxable income of each parent.

As usual, the program asks for information about dependent children including their names and dates of birth.

Where Does GenuTax Standard Report the Tax Savings Created by this New Family Tax Cut?

The amount that can be saved is reported during the interview process. You can also see it by printing off the tax return and looking at Schedule 1-A or line 423 of Schedule 1.

Do I Recommend Using a Tax Program to Calculate the Family Tax Cut?

Maybe.

You can fill out Schedule 1-A by hand. It’s boring and takes a bit of time though.

Since you can use StudioTax or GenuTax Standard tax software for free, I’d recommend using one at least to check your work.

How Much Did We Save Thanks to the Family Tax Cut?

Well, let’s just say we can afford one more family skating afternoon but not necessarily with hot chocolate.

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Will you qualify for this new Family Tax Cut? Or is it just another reason to think the government is playing favourites? Please share your views with a comment.