Maximizing Transferable Tuition And Education Credits

Of all the investments we make during our lives, one of the most important, and the one with the highest rate of return on investment, is education.  There is no doubt about it.  Unfortunately, one of the big obstacles in obtaining a post-secondary education is the cost.

There are some tax strategies you should consider in an effort to maximize the tax savings available to both students and a supporting spouse or parent.  You can effectively reduce the cost of obtaining an education by using these tax strategies.  It requires some planning between the supporting parent or spouse and the student, but is well worth it.

First, the student must file an income tax return and request the GST credit.  Students must report all sources of income and reduce that income by using all tax deductions available to them before using any current-year tuition and education tax credits to reduce taxes payable.

Deductions available to students include moving expenses, unused tuition and education amounts from previous-years, RRSP credits and, up to $3,000 in exemptions for income from scholarships, fellowships and bursaries.  It is important to minimize the use of  current-year tuition and education credits by the student so that you can maximize the amount transferable to a supporting parent.

Once the student has completed their tax return and reduced their taxable income to zero, they can then transfer any unused current-year tuition and education amounts.  The annual maximum transferable from a student to a supporting parent or spouse is $5,000.

The student must authorize the transfer by completing and signing the back of their Tuition and Education Certificate T2202A.  This is very important, as the credits cannot be transferred after the fact – although a student can carry forward tuition and education credits to future years, they can only be transferred in the year they are acquired.  As such, it is important that the student and supporting parent or spouse understand the need to file concurrently to ensure the proper amounts are transferred.

The end result is that the student gets a full refund of any taxes paid during the year plus the GST credit, and the supporting parent or spouse obtains an additional $1,100 tax refund (on average) from a $5,000 tuition and education credit transfer.

Working Enterprises Tax Services Ltd. provides personal income tax preparation and independent financial services for members.

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