By Rob Cosman, Partner, Jones & Cosman Chartered Professional Accountants
The Canada Revenue Agency offers credits to offset the costs of being a student. As of the 2017 tax year, the federal education and tax credits are planned to be eliminated. However, you may still qualify for the tuition tax credit.
What Happens to the Education and Textbook Tax Credits in 2017?
As of Jan. 1, 2017, you may no longer claim the education or textbook tax credits. However, if you carried forward credits from a previous tax year, you may claim those credits on your tax return for 2017 or later years. If you qualify, you may still claim these tax credits for the 2016 tax year.
What Are the Education and Textbook Credits for 2016?
If you are a student, you should receive a tax certificate from your school at the beginning of each year, which details the number of months you were enrolled. As of 2016, you may claim $120 per month for each month you were a part-time student and $400 for each full-time month of enrolment. If you qualify for the disability tax credit or have a qualifying physical or mental impairment, you may claim $400 per month, even for the months you were a part-time student.
The textbook credit is an additional credit you receive if you qualify for the education amount. This credit is worth $65 for every month of full-time school and $20 for every part-time month. There are no exceptions for disabled students.
For instance, if you were a full-time student for nine months in 2016, you may claim a $4,185 credit on your federal tax return. This is the full-time education credit ($400) plus the full-time textbook credit ($65) multiplied by the number of months (9).
How Do Education and Textbook Credits Work?
These are non-refundable credits, which means they can cover the tax you owe but cannot create a refund. For example, if you qualify for a $4,185 credit but you only owe $2,000 in tax, the credit brings your tax bill down to zero, but you do not receive a refund for the rest. You can transfer unused credits or carry them forward.
How Do You Transfer Education and Textbook Credits?
You may transfer your unused education and textbook credits to your spouse or common-law partner. Alternatively, you may transfer credits to your parents or grandparents. If you are married or in a common-law partnership, you may also transfer credits to your spouse or partner’s parents or grandparents.
To continue with the above example, if you use $2,000 of your education and textbook credit to cover your own taxes owed, you may transfer the remaining $2,185 to an eligible party. If you transfer these credits to your spouse or common-law partner, that person should note them on Schedule 2, but if you transfer the credits to parents or grandparents, they should note the transfer on Schedule 1.
However, you may only transfer up to $5,000 minus the amount you have claimed. To illustrate, imagine you qualify for $6,000 in credits and you claim $3,000 on your return. In this case, you may only transfer $2,000 to an eligible person. You may not transfer the full $3,000 that remains.
How Do You Carry Forward Education and Textbook Credits?
Rather than transferring unused credits, you may save them for yourself by carrying them forward and claiming them on a future tax year’s return. Schedule 11 can help you calculate the credits you can carry forward. Even if you don’t owe any tax in 2016 and don’t need your education credits, you should still fill out Schedule 11. That way, when you do your taxes in 2017 or a later year, you can use the credits to offset the tax owed.
What Is the Tuition Tax Credit?
You may also claim tax credits based on tuition you have paid throughout the year. If your tuition payments were reimbursed by your employer, your parent’s employer, or a federal or provincial job training program, you cannot claim a credit for your tuition.
However, in almost all other cases, you can claim a credit for your tuition payments. You should receive a tax certificate from your educational institution that has the information you need to complete this portion of your tax return. The credit applies to tuition paid to colleges and universities, but it also covers fees for licensing exams for professional associations or occupational and trade certifications.
TurboTax makes it easy for students to get all the credits they’re eligible for. If using TurboTax Standard, the EasyStep interview and step-by-step guidance will ask you simple questions about your life and automatically find the credits that apply to you.
If you are using TurboTax Free or a forms based product, to calculate your tuition credit, use Schedule 11. You may claim this credit in tax year 2016 along with education and textbook credits if you qualify. Unlike the education and textbook credits, this credit is not being eliminated. You can continue to claim this credit in tax years 2017 and beyond.
About Rob Cosman
Rob Cosman, is a Chartered Professional Accountant who runs his own accounting and tax practice with his wife in Toronto, Ontario. Beginning in 2000, Rob’s career spanned over Halifax, Cayman Islands and Toronto. Rob held senior industry positions including CFO roles in public and private industries ranging from telecommunications, retail sales, and consumer packaged goods.
Rob has over 10 years of tax experience and is the author of numerous articles. He has the ability to take complex tax situations, explain them in common sense terms and guide clients to make the best decisions based on their individual situations.