Tax help for post-secondary education costs

There’s a lot that is still unknown about the upcoming 2021-22 academic year for post-secondary students. They may be back on campus, living in residence and once again attending classes in lecture halls. Less optimistically, they may (again!) be learning online and living off campus, or still at home with their parents. Most likely, they will be experiencing some combination of the two.

Whatever the physical reality will be for post-secondary students come September, there will be tuition costs to be paid. Fortunately there are also tax credits and benefits which can be claimed by the student (or their spouses, parents or grandparents) to offset such costs.

Tuition fees

The good news is that a tax credit continues to be available for the single largest cost associated with post-secondary education: tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (including most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of tuition costs.

The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify. The following are eligible tuition fees for purposes of that credit:

• admission fees
• charges for use of library or laboratory facilities
• exemption fees
• examination fees (including re-reading charges) that are integral to a program of study
• application fees (but only if the student subsequently enrolls in the institution)
• confirmation fees
• charges for a certificate, diploma or degree
• membership or seminar fees that are specifically related to an academic program and its administration
• mandatory computer service fees
• academic fees

The following charges are not eligible for the tuition tax credit:

• extracurricular student social activities
• medical expenses
• transportation and parking
• board and lodging
• goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer)
• initiation fees or entrance fees to professional organizations including examination fees or other fees (such as evaluation fees) that are not integral to a program of study at an eligible educational institution
• administrative penalties incurred when a student withdraws from a program or an institution
• the cost of books (other than books, compact disks or similar material included in the cost of a correspondence course when the student is enrolled in such a course given by an eligible educational institution in Canada) and
• courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, they are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

Where a student doesn’t have tax payable for the year because their income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent or grandparent.

Personal and living expenses

As has always been the case, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

Most post-secondary students in Canada incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a tax credit can be claimed for the amount of interest being paid, in some circumstances.

Students who are still in school and arranging for loans to finance their education should be mindful of the rules. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at preferred interest rates. Once a student has graduated and begun to repay a government-sponsored student loan, financial institutions may offer to consolidate it with other kinds of debt, also at advantageous interest rates. However, interest paid on that line of credit will never be eligible for the student loan interest tax credit.

As explained in the Canada Revenue Agency (CRA) publication on the subject: “ [I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

Students who are contemplating consolodating or borrowing from a financial institution rather than getting a government student loan must remember to take into account the loss of the student loan interest tax credit on that borrowing in future years.

Other credits and deductions

There are, as well, a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary students (for instance, deductions for moving costs). The CRA publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The Students and Income Tax guide is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.