Students typically receive a tax credit based on the amount of tuition they paid in the year. ITA 118.5(1)(a) states that an individual is eligible for tuition credits if “the individual was during the year a student enrolled at a post-secondary educational institution in Canada.”
Fees paid by a student to a post-secondary educational institution in Canada or by a deemed resident of Canada to a post-secondary educational institution outside Canada, for courses that are not at the post-secondary school level, are eligible for the tuition tax credit, if the student meets both of the following conditions:
- is at least 16 years of age at the end of the year
- is enrolled in the educational institution to obtain skills for, or improve their skills in, an occupation
The tax credit will equal the tuition paid multiplied by an ‘appropriate percentage’, which at this time is 15%. So, for example, if a student paid $8,000 in eligible tuition fees during the year they could potentially claim a $1,200 tax credit ($8,000 X 15%).
What are the limits?
A student must use the tuition tax credit to reduce their tax payable to $Nil. Any excess amount can be carried forward to be applied against the student’s tax payable in future periods (there is no limit to the number of years it can be carried forward) or a portion of the tuition tax credit can be transferred to a spouse, common-law partner, parent or grandparent.
How does the tuition credit transfer work? (ITA 118.8 to 118.9))
As mentioned above, the student must first use enough of their tuition tax credit to reduce their tax payable to $Nil. The remaining amount can be transferred to a parent, grandparent etc. up to a maximum of $750 in tax credits for the year (or $5,000 in tax credit base before applying the 15% ‘appropriate percentage’) less the amount used by the student in the year. For example, if the student used $150 of the tuition tax credit to reduce their tax payable to $Nil, a maximum of $600 ($750 – $150) in tax credits could be transferred to an eligible family member to help reduce their tax payable.
If the student and the parent can both utilize the tuition credit, to which individual is it more valuable?
The situation depends on whoever owes taxes in the current year because tuition credits are worth 15% of the tuition amount to both parties. For example, if the student does not owe any taxes and the parent owes taxes, it is beneficial for the parent to claim the tuition credit from its dependent in the current tax year. Otherwise the student can carry-forward the tuition amount and claim the tax credit in future years when their earnings are higher.
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