Tuition, education and textbook credits can really add up. Each year the total of all the credits costs the federal government about $2 billion – and this doesn’t include provincial tax credits.
Tuition costs are rising every year, and students are struggling to find a way to pay for it all. Below are some ideas that might be better alternatives to the current tax structure for students and their tuition credits.
Transfer of Tuition Credit
Tuition credits can be transferred to a spouse, parent or grandparent after the net taxes owing by the student are reduced to zero. Since many students only work part time or during the summer, they pay little in taxes while attending school so tuition credits are typically available to transfer.
Students can transfer up to $5,000 of tuition credit each year – so long as their own taxable income is brought down to zero. This limit is in place to prevent a large amount of credits being applied to high income earners (and saving a substantial amount of taxes).
One alternative is to link the transfer limit to family income – with more credits available to transfer for lower income families.
For example, if a lower income couple helps pays the post-secondary tuition for their dependent son/daughter, they’d be able to receive even more of their tax dollars back if they were able to transfer tuition credits to reduce their own taxes. Linking the transfer limit to family income would mean lower taxes for lower income families and it would also prevent higher income earners from transferring more credits.
This would make taxes more equitable for families who help pay for their dependents to attend post-secondary schooling.
Revised Student Loans
A more drastic alternative would be to get rid of tuition credits altogether in favor of education funding based on need.
Currently the system gives tuition credits to anyone regardless of their income. If you attend post-secondary schooling, you receive tuition tax credits for the amounts paid.
An alternative to this would be to scrap tuition credits completely and instead offer student loans based on income. Those in the lowest income tax brackets could receive student loans that don’t have to be repaid. This would act as an incentive for lower income earners to pursue a post-secondary education (and eventually earn a higher income). It would also remove the financial barriers many low income earners face when attending post-secondary school.
Those in the mid-range income tax brackets would receive loans that must be paid back like the current student loans, and those in high income tax brackets would not be eligible for student loans.
It may seem a bit drastic but it might also help to level the playing field when it comes to paying for post-secondary schooling.
Transferring Tax Credits to Schools
In 2013 a higher education strategist named Alex Usher floated an idea that may have some merit – transferring tuition credits to schools instead of a spouse, parent or grandparent.
The tuition credits wouldn’t provide a tax break for the student (or taxpayer) but the idea is that the school itself could claim the amount in the form of a rebate from the government. This would reduce the cost to the school and (hopefully) the school would pass the savings on to the student, lowering tuition costs overall.
It would also mean the money would be received quicker – the forms for the rebate could be filed when the student pays the tuition, not the following spring when the tax return is filed. It may not seem like much of a difference for those who earn a steady income, but anyone on a limited income knows that an early rebate is better than having to wait until the next year to get the money back through a tax refund.
Currently Available to Students
|Education Tax Credit||15% credit||Yes||Carried forward indefinitely|
|Tuition Tax Credit||15% credit||Yes||Carried forward indefinitely|
|Textbook Tax Credit||15% credit||Yes||Carried forward indefinitely|
|GST/HST Credit||Based on income||No||Must be 19 or older and file a tax return|
|Student Loan Interest||15% credit (on interest paid)||No||Only first 5 years are eligible|
It should be noted that the tax credits available to students are non-refundable – this means they can be used to reduce any taxes payable but can’t generate a tax refund (if there are no taxes already owing).
Students who move at least 40km to attend post-secondary schooling (full time) can also deduct their moving expenses against any income earned. Moving costs can also be deducted if the student moved at least 40km from school to earn income for a summer job at a different location.
Conclusion: while they may not be perfect, there are viable ideas out there that could be more effective than the current tax system. Any system that can reduce the administrative burden, lower costs or make post-secondary education more equitable should be explored.
What are your thoughts on the current tax system for students?