With post-secondary students back in school this month, now is a good time to review the main tax credits and deductions available to them, especially given the recent changes announced in the 2016 federal budget.
Post-secondary students can currently claim three primary tax credits to help them reduce their tax bills: tuition, education and textbook credits. The tuition credit is a non-refundable credit, worth 15 per cent of the amount of tuition fees, with no maximum. The education amount is a 15 per cent non-refundable federal credit on $400 for each month of full-time post-secondary education, or $120 per month for each month of part-time schooling.
The textbook amount is a similar credit, available only if you can claim the education amount, and is worth $9.75 per month for full-time post-secondary attendance or $3 per month for part-time schooling.
If the student does not have sufficient income to use the credits in the year of attendance, up to $5,000 can be claimed by the student's spouse or partner, or supporting parent or grandparent. Any remaining amount can be carried forward for use by the student in a future year.
The budget announced the elimination of the education and textbook tax credits effective Jan. 1. No changes were made to the tuition tax credit and the carry-forward rules will continue to apply for education and textbook tax credits (as well as the tuition credit) that arose prior to 2017 but have not been claimed.
If a student paid interest on a student loan, she may be able to claim a non-refundable tax credit for the amount of interest paid. Note that while only the student can claim the student loan interest credit, the interest on the loan itself can be paid either by the student or by someone related to the student, such as a parent.
If the student has no tax payable for the year, either because they had minimal income or had sufficient other credits to reduce tax payable to zero, it makes no sense to claim the interest credit; instead, the student can carry the interest paid forward and claim it on any tax return in the following five years.
Note that the Income Tax Act is very specific that only loans received under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial government law qualify. This condition can be critical to determining eligibility for the tax credit as interest on student loans from financial institutions won't qualify, as various Tax Court decisions in the past have confirmed.
Another potential tax benefit that can help students is the goods and services tax/harmonized sales tax (GST/HST) credit. This tax-free quarterly payment is available to lower-income Canadians who are at least 19, making most students eligible. To get the credit, however, the student must file a tax return.
Finally, students who move at least 40 kilometres to attend a post-secondary program on a full-time basis can deduct moving expenses against any income earned while at school, perhaps from a part-time job. Similarly, if the student moved at least 40 kilometers from school during the summer months to earn employment income, those moving costs can also be deducted against any summer earnings.