The end of summer means back to school for students of all ages. For parents of elementary and secondary school students the focus is on obtaining back to school clothes and supplies and starting the process of enrollment in after-school activities for the fall. For those already in (or starting) post-secondary education, choosing courses, finding a place to live and paying the initial bills for tuition and residence are more likely to be on the immediate agenda.
What both groups of parents and students have in common this school year, however, is that this is the first full school year which will be affected by previously announced tax changes. And, unfortunately, each of those tax changes, for students at all levels, means higher after-tax costs for education-related expenses.
For students enrolled in the public education system there is, of course, no cost to attend. Most such students are, however, enrolled in one or more after-school activities and for nearly all of those activities, there is an out-of-pocket cost that must be paid. Depending on the activity, those costs can easily amount to several hundred dollars per child over the course of the school year. In recent years, parents were able to offset those out-of-pocket costs by claiming the children’s arts credit or the children’s fitness credit, depending on the kind of activity involved. Both such credits were, however, eliminated as of the 2017 tax year. Consequently, neither credit can now be claimed for any formerly qualifying activity or program. In budgeting for the cost of any contemplated after-school activity, parents must budget on the basis that they will be paying the full cost out-of-pocket, and will not be claiming any offsetting tax credit on their tax return for 2017.
There is some good news for parents of elementary school-aged children, in that where costs are incurred for after-school care, a deduction can still be claimed for such costs. That deduction is part of the general child care expense deduction, which may be claimed (within specified limits) where child care costs are incurred in order for the parent to work, at employment or self-employment. The amount of deduction claimable depends on the age of the child and the actual amount expended, with an overall limit based on family net income. More information on claiming the child care expense deduction can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-214-child-care-expenses.html.
At the post-secondary education level, students (and their parents) have benefitted for many years from an “assist” through our tax system, which provides deductions and credits for some of the many associated costs. Two of those credits are, however, no longer available to be claimed.
The biggest cost of post-secondary education is, of course, tuition, and the tax credit provided for eligible tuition costs continues to be available for the upcoming (and subsequent) academic and taxation years. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. The provinces and territories also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction. At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where a student doesn’t have tax payable for the year, as is often the case, any credits earned can be carried forward and claimed by the student in a future year, or transferred in the current year to a spouse, parent, or grandparent.
For many years post-secondary students have also been able to claim two other federal tax credits — the education tax credit and the textbook tax credit. Both, unfortunately, have been eliminated, and so the only credit which will be claimable for the upcoming academic year by post-secondary students is the non-refundable credit for 15% of tuition costs incurred. Where the education and textbook credits have been earned but not claimed in previous years, however, they are still available to be claimed by the student as carryover credits in 2017 or later years.
The CRA publishes a very useful guide to tax measures which affect students enrolled in post-secondary education. That guide, entitled Students and Income Tax, has been updated to take account of the recent changes, and the most recent version is available on the CRA website at http://www.cra-arc.gc.ca/E/pub/tg/p105/README.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.