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Tuition, Education, Textbook and Student Loan Tax Credit

There are quite a few University/College students who email me with questions regarding personal finance. The most typical question usually regards the tax advantages of being a student.  The good news is that there are quite a few tax credits for students, the bad news is that most students don’t make enough income to take advantage of them (but can be carried forward/transferred).

It’s been quite a few years since I’ve been in University, but even as a young man with very little income, I thought about various tax strategies.  One of which was how to best use the tax credits given to students.  What tax credits? Students are offered a tuition tax credit, student loan interest tax credit, an education amount, and a textbook tax credit.

One thing to note is the difference between a tax credit and tax deduction. A (non refundable) tax credit will reduce your taxes owning whereas a tax deduction will reduce your taxable income. A non-refundable tax credit will typically give you 15% (lowest federal tax bracket) of the amount which is sometimes matched by the province. A deduction reduces your taxable income, thus your taxes payable when you file.

Having said that, lets get to the specific tax credits for students:

Tuition Tax Credit

This is perhaps the largest tax break where students will get a non-refundable tax credit (15%) on tuition fees at qualifying institutions.  How does this work?  If the students tuition for the year was $10,000, then he/she will be able to reduce their income tax by $1,500.  If the student hasn’t made any income throughout the year thus no taxes payable, the amount can be carried forward indefinitely.

Education Amount

In addition to the tuition tax credit, $400 can be claimed for each month of full time study as the education amount.  Part time students can claim $120/month providing the education is at least 3 weeks long and 12 hours per month.  Employees can claim the education amount providing that the tuition is not reimbursed by employer.

Remember though that the amounts above are what’s eligible to be claimed, and not what you get back.  So if the student is full time for the year, they can claim $4,800 ($400*12 months) which results in the amount $720 refunded ($4,800*15%).

Textbook Tax Credit

Students eligible for the education amount can also claim the textbook tax credit.  The benefits are a non-refundable tax credit in the tune of $65/month for those who qualify for the full time education amount and $20/month for part time.  As with the education amount, the tax credit is worth 15% of the total claimed.  Therefore, students can get back $117 / year (15% of $65*12 months) for full time or $36 /year for part time.  My calculations are assuming that the student is in school year around.

Student Loan Tax Credit

If you were lucky, you didn’t have to experience the pain of obtaining student loans.  I remember back when my wife had to get student loans, the worst being the long, all day wait, lineups.  The bright side being is that a student loan is like an investment loan for higher future income for which I am grateful.  Tax wise, a student loan is similar to an investment loan.  But instead of the interest on the loan being tax deductible, there is a federal tax credit offered (15%).  So if you paid $1,000 in student loan interest for the year, then you can $150 back on your income tax paid in already.

Note that every province has different incentives/rules regarding student loans.  For example, in 2008, NL announced the elimination of NL student loan interest.

Transferring Unused Credits

As I mentioned above, the typical student does not earn much income therefore, very few pay income tax.  If that is the case, the tax credits are useless and should be carried forward to a future year.  In addition to the carry forward, there is the option of transferring unused credits to a spouse/parent/grandparent.   If the student is not able to use the tuition, education, or textbook tax credits in the tax year, then up to $750 in tax credits can be transferred.  Note though, any carried forward amount cannot be transferred.

Final Thoughts

There are quite a few tax advantages of being the student.  We took advantage of these credits by accumulating them while we were students and carrying them forward to future, higher income, years.  Did you take advantage of student tax credits?

Reference: KPMG Tax Planning 2009

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 43 comments… add one }
  • Ramona January 4, 2010, 9:34 am

    Oops! The education amount is actually $400 per month for full time attendence and $120 for part time.

    Cheers!

  • Four Pillars January 4, 2010, 11:20 am

    I didn’t realize you could transfer the credits to your parents.

    Here is a link to the proper education amounts that Ramona mentioned:

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/323/dctn-eng.html

  • FT FrugalTrader January 4, 2010, 11:22 am

    Oopsie, I mixed up the actual amount and the tax credit amount, will fix it in a bit ($400 x 15% = $60 /mo).

  • Big Scroogy Guy January 4, 2010, 11:54 am

    Yup, we parents enjoy the Tuition transfer as well, but remember that the TUITION portion of the bill from the University does not include all the service fees the university hikes on to you as well.

  • Mulberry57 January 4, 2010, 12:25 pm

    Does an education line of credit qualify as a loan ?

  • FT FrugalTrader January 4, 2010, 12:43 pm

    Muberry, I believe that only qualified Canada/Provincial student loans qualify for the interest deduction (ie. line of credit does not count).

  • jacqjolie January 4, 2010, 12:47 pm

    I transferred my tax credits to my father – he was in the top tax bracket (still is at 89 y.o.!) even though he didn’t pay for any of my education.
    My son is transferring the portion that he can’t use to me – it will likely be a long time (if ever) that he’s in my tax bracket, and I help him out quite a bit – too much in fact!

    • Tina worth August 10, 2015, 11:48 pm

      Because these are non refundable credits, not deductions, it doesn’t matter what bracket the person who claims them is in. No matter how high the taxable income is the federal credit will only be 15%. However, when the parent or spouse has tax to pay it still may be worthwhile transferring as much as possible because the carry forward option means that the government holds onto that money (interest free) until the student has taxable income. (And if the student has taxable income while they are living outside of Canada they will have to use up those tax credit before they can use their foreign tax credits. ) When we’ve done this for our children we have paid them what the credit was worth because we did not pay for their education.

      When considering using or transferring credits also remember that in the long run it may be advantageous to transfer the provincial credits instead of federal credits because if you are working in a different province when you need to use the credits the provincial credit amount usually gets boosted up to the level of the federal credits. (Unless one of the provinces is Quebec.) So by all means transfer to reduce to the provincial credit but if possible don’t transfer so much that you eliminate the provincial credit.

  • Asher January 4, 2010, 5:37 pm

    Mulberry – FT is right. There was an release about this. Student Line of Credits are specifically not allowed.

    jacqjolie – since they’re tax credits and not tax deductions, the marginal tax bracket has no impact on the size of the refund – as long as you are paying taxes, you will get the refund.

  • Kathryn January 4, 2010, 7:21 pm

    These are huge for us. My husband is in his 5th (and hopefully final) year of his PhD. It’s been great to have these deductions. The other good news is that scholarships and grants are now income tax exempt which has make a huge difference to the amount of tax we pay.

    The text book credit hardly scratches the surface. I wish we could deduct the total costs of the textbooks. Just last week we ordered a $303.00 text book from amazon because that was the LOWEST price we could find anywhere. Three hundred and three dollars for one text book! He averages over $500-$800 a semester on textbooks and because he’s no longer an undergraduate, most of the books he needs aren’t available used.

  • Kyle January 4, 2010, 7:42 pm

    If your employer covers 50-75% of your tuition , can you claim the other 25-50% ?

  • Chet January 4, 2010, 9:08 pm

    Kathryn — just to clarify “tax terminology”. These are not deductions but tax credits.

    Cheers,

  • Kathryn January 4, 2010, 10:31 pm

    Chet: You are absolutely right. My mistake in wording. I meant tax credit but said deduction. Perhaps I was wishing they were deductions! :-)

  • Jared January 5, 2010, 1:07 am

    Does anyone know if French language courses (as a second language) are tax deductible?

  • Flexible Budget January 5, 2010, 3:24 am

    I am so overjoyed to come across your post. I would be moving on with my further studies by fall this year and I am just really glad I read your post and will now be looking for these options.

  • Asher January 5, 2010, 12:31 pm

    Jared – not tax deductable but perhaps there is a credit available – most places can issue the tax receipts (I’ve heard of people getting them for taking snowboarding classes and other similar stuff) but you should call and ask.

  • cashback cards January 5, 2010, 3:40 pm

    Wow, this is a great student loan tax credit information. Do you have any suggestions of where I could research of find this information for the US though? Thanks again for all that you do!

  • Vancouver CA January 5, 2010, 7:01 pm

    Other Credits available to students include:

    1. Transit Credits – many students are given bus passess through their colleges/universitites. These amounts can be claimed for credit per income tax act 118.02(1)

    2. A credit is also available for ancillary fees and charges of up to $250 per year per ITA 118.5(3) so long as the fee is: paid to the institution and in respect of enrollment; but not if the fee is for a student association, for property aquired by the student, for services not ordinarily provided by schools offering post secondary courses, for construction/maintenance/renovation of buildings, unless the are owened and used by the school for courses/services, and lastly, not if the fee is not required to be paid by all other full-time/part-time students (i.e. no late fees).

    (3) Inclusion of ancillary fees and charges — For the purpose of this section, “fees for an individual’s tuition” includes ancillary fees and charges that are paid

    Legislation Judgments
    (a) to an educational institution referred to in subparagraph (1)(a)(i), and

    Judgments
    (b) in respect of the individual’s enrolment at the institution in a program at a post-secondary school level,

    but does not include

    (c) any fee or charge to the extent that it is levied in respect of

    (i) a student association,

    (ii) property to be acquired by students,

    (iii) services not ordinarily provided at educational institutions in Canada that offer courses at a post-secondary school level,

    Legislation
    (iv) the provision of financial assistance to students, except to the extent that, if the reference in paragraph 56(1)(n) to “$500” were read as a reference to “nil”, the amount of the assistance would be required to be included in computing the income, and not be deductible in computing the taxable income, of the students to whom the assistance is provided, or

    (v) the construction, renovation or maintenance of any building or facility, except to the extent that the building or facility is owned by the institution and used to provide

    (A) courses at the post-secondary school level, or

    (B) services for which, if fees or charges in respect of the services were required to be paid by all students of the institution, the fees or charges would be included because of this subsection in the fees for an individual’s tuition, and

    (d) any fee or charge for a taxation year that, but for this paragraph, would be included because of this subsection in the fees for the individual’s tuition and that is not required to be paid by

    (i) all of the institution’s full-time students, where the individual is a full-time student at the institution, and

    (ii) all of the institution’s part-time students, where the individual is a part-time student at the institution,

    to the extent that the total for the year of all such fees and charges paid in respect of the individual’s enrolment at the institution exceeds $250.

    Also, while interest from a student line of credit is not deductable, I found that the tax benefits of the deductability were not offset by the increased benefits of a lower interest rate on a privately consolidated loan. Don’t let the tax dog wag the business tale.

    Also, studnets that are eliglbe for the disability tax credit are eligible for full-time student amounts, regardless of course load per ITA 118.6(3)

    Interest on loans made by the school

    Finally, don’t forget that

  • Vancouver CA January 5, 2010, 7:11 pm

    Other Credits available to students include:

    1. Transit Credits – many students are given bus passes through their colleges/universities. These amounts can be claimed for credit per income tax act 118.02(1)

    2. A credit is also available for ancillary fees and charges of up to $250 per year per ITA 118.5(3) so long as the fee is: paid to the institution and in respect of enrollment; but not if the fee is for a student association, for property aquired by the student, for services not ordinarily provided by schools offering post secondary courses, for construction/maintenance/renovation of buildings, unless the are owened and used by the school for courses/services, and lastly, not if the fee is not required to be paid by all other full-time/part-time students (i.e. no late fees).

    ITA 118.5(3) Inclusion of ancillary fees and charges — For the purpose of this section, “fees for an individual’s tuition” includes ancillary fees and charges that are paid

    (a) to an educational institution referred to in subparagraph (1)(a)(i), and

    (b) in respect of the individual’s enrolment at the institution in a program at a post-secondary school level,

    but does not include

    (c) any fee or charge to the extent that it is levied in respect of

    (i) a student association,

    (ii) property to be acquired by students,

    (iii) services not ordinarily provided at educational institutions in Canada that offer courses at a post-secondary school level,

    (iv) the provision of financial assistance to students, except to the extent that, if the reference in paragraph 56(1)(n) to “$500” were read as a reference to “nil”, the amount of the assistance would be required to be included in computing the income, and not be deductible in computing the taxable income, of the students to whom the assistance is provided, or

    (v) the construction, renovation or maintenance of any building or facility, except to the extent that the building or facility is owned by the institution and used to provide

    (A) courses at the post-secondary school level, or

    (B) services for which, if fees or charges in respect of the services were required to be paid by all students of the institution, the fees or charges would be included because of this subsection in the fees for an individual’s tuition, and

    (d) any fee or charge for a taxation year that, but for this paragraph, would be included because of this subsection in the fees for the individual’s tuition and that is not required to be paid by

    (i) all of the institution’s full-time students, where the individual is a full-time student at the institution, and

    (ii) all of the institution’s part-time students, where the individual is a part-time student at the institution,

    to the extent that the total for the year of all such fees and charges paid in respect of the individual’s enrolment at the institution exceeds $250.

    3. Also, while interest from a student line of credit is does not generate any credits, I found that the tax benefits of the credits were not offset by the increased benefits of a lower interest rate on a privately consolidated loan. (15% federal and 7% provincial (usually) x loan interest vs. loan x differences in interest rates). Don’t let the tax dog wag the business tale.

    4. Also, students that are eligible for the disability tax credit are eligible for full-time student amounts, regardless of course load per ITA 118.6(3)

    5. Finally, interest on loans made directly to the student by the educational institution where a student has been denied a loan by the provincial or federal agency does qualify. Napier, [2007] 2 C.T.C. 2377 (TCC).

    Cheers,

    Vancouver, CA

  • YoungFlatlander January 6, 2010, 6:02 pm

    I recently graduated from the U of S and received a letter stating I had approximately $15,000 of Federal tax credits carried forward and approximately $15,000 of provincial tax credits. Does this mean that I can use $30,000 of NR tax credits towards my income tax paid in 2009? At the 15% previously stated that would give me approximately $4,500 correct? Thanks!

  • Michelle H. February 3, 2010, 7:11 pm

    I have been enrolled in schoool since last yr, however, I only made about 1500.00. My schooling cost 16000.00. A friend told me her H&R Block guy told her she is getting back 1000.00 just for school. When I did my taxes online, I got nothing. Can anyone tell me why?? (p.s. I tried deducting it both ways)

  • FT FrugalTrader February 3, 2010, 7:52 pm

    Michelle, the tax credits are non-refundable. Meaning if you don’t owe any taxes from your income, you won’t benefit from the tax credits. In your case, you can either carry the tax credits forward to a future year with more income, or transfer some to your parents.

  • Falcao March 7, 2010, 1:24 am

    Thank you for your explanations! I have a question: Do I have to claim tuition or can I omit the tuition for the year and never put that in my income tax?

  • Carla March 18, 2010, 12:54 pm

    I paid for 8 months of tuition in 2009 but can only claim 4 months on 2009 income tax return. Is this correct?

  • Kathryn March 18, 2010, 2:32 pm

    Falcao & Carla: You have to claim the tuition amount. The first year you do so, don’t be surprised if your taxes are ‘reviewed’ and they ask you to send in documentation. You need to download a form from your school or university called “Tuition, Education and Textbook Amounts Certificate”. There is will have the total semesters you were in school, the total months in school and the total tuition paid for the year. You need both the total tuition amounts AND the # of months you were a student. It doesn’t matter when you paid the tuition. It is recorded for when you were a student. If you were in school a total of 4 months for 2009, this would be correct. Your certificate should have accurate numbers on that and you’ll need the form in case you get reviewed.

  • LM March 20, 2010, 11:44 am

    My wife has accumulated alot of federal and ontario tuition and education tax credits from her 4 years of university (graduated in 2008). In 2009 we moved to nova scotia and are filing ns returns. The federal credits were applied no problems but i don’t seem to be able to make use of the ontario credits. How can i make use of these credits?

  • jesse March 26, 2010, 1:17 am

    I was a student for close to 6 years post secondary at 8 months/yr. I recently graduated to find that my tuition tax credits had been accidently transferred to my parents and not to me (a family friend did our returns and assumed my parents paid my tuition). I made approximately 5000/year during school and paid 5000 in tuition. If I make between 60,000-80,000/yr within the next 5 years how large of a slip up is this? My parents caught the mistake and want to correct it but I am worried that it may be bigger than we all think. please tell me in terms of money it isnt a large issue. The issue is not that my parents have gotten the credits but more that my wage has the potential to quickly exceed theirs within less than 10 years. I have very little knowledge of how any of this works and would like some clarity.

  • FT FrugalTrader March 26, 2010, 9:48 am

    jesse, note that only a portion of the tuition tax credits can be transferred to your parents per year, so you probably still have a bunch that you can claim under your own name. Best to contact the accountant and see how much each parent claimed and how much you are eligible for.

  • LM March 26, 2010, 10:03 am

    Jesse: Because tuition and education amounts are a tax credit and not a deduction your level of income does not affect how much you get back (see the intro to this blog).

    as for my question posted above. the ontario provincial tuition and education amounts get converted into nova scotia credits at the federal rate.

  • Justin April 14, 2010, 11:11 pm

    If a Student Line of Credit is not eligible for the Student Loan Tax Credit, can it be considered an investment loan so that interest payments are tax deductible? This of course assumes that money from the line of credit is used for investment purposes with the expectation of income from these investments. If so, I also assume that if only half of the line of credit is used for investment purposes, only half on the interest payments are tax deductible.

    • FT FrugalTrader April 15, 2010, 8:51 am

      Justin, if you use the line of credit to invest in equities, then yes, the interest would be deductible. However, I would be careful when mixing personal expenses with investment expenses within the same line of credit. Personally, I would always keep the investment loan separate from personal.

  • Justin April 16, 2010, 12:36 am

    Hypothetical scenario:
    – I have $10,000 invested in equities.
    – I then take out a $10,000 student line of credit and use it to pay for tuition.

    Any thoughts about whether I would be able to claim the interest payments from the get go as tax deductible under this situation?

    I think the irrefutable way of insuring interest payments are tax deductible would be to first liquidate the $10,000 invested. Then use those proceeds to pay off the line of credit. Next, borrow $10,000 from the line of credit again and use the loan to repurchase your original investments. But all this just seems very wasteful to me.

  • FT FrugalTrader April 16, 2010, 8:51 am

    Justin, student loans only qualify for the tax credit if they are from the government. Otherwise, the line of credit would need to be invested directly in equities/business to qualify for the investment loan deduction.

  • flatlander July 6, 2010, 1:09 am

    What is the authority that disqualifies the tuition tax credit if the employer reimburses the tuition? Isn’t this credit based on general tax policy that supports higher education? Why should it matter whether the tuition was reimbursed? A tuition payment from an employer is merely a taxable benefit, it shouldn’t disqualify the student for tax credits.

  • btilk January 20, 2011, 12:02 am

    If I pay off my Student Loan in one lump sum this January, can i get money back when I file my taxes for 2010 or do I have to wait until next year?

  • Bonnie March 1, 2011, 10:15 pm

    What is, if there is, a maximum amount that can be transfered to a parent per tax year.

    Bonnie

  • FT FrugalTrader March 2, 2011, 1:59 pm
  • Luke August 25, 2011, 3:34 am

    Hello,
    I have been living in Korea for the last 3 years. I am not sure as of yet if I am a non resident for these years or not. I was not deemed one as of yet. I don’t own property or have anything in Canada, nor do I use medical or have a license there. I do have a bank account and credit card though.

    I’m pretty sure I am paying tax in Korea, as we aren’t exempt from paying it, I have one paper that for sure says I paid last year, but none for the other years. It’s a little hard to obtain my first years tax filings because its in a different city and they don’t really speak English at my school. At any rate, I like most students didn’t use all my tax credit, does it ever expire, if I did have to pay tax in Canada at some point can I reduce my fees via my school credit or does it vanish after a time, I thought I remembered reading that you couldn’t use them after 4 years of leaving school…

    I haven’t paid taxes in Canada since I’ve been here, cause really I wasn’t sure if I was suppose to or not. Also I didn’t want to pay them, if I was exempt. Your opinion would be useful. Should I file for the years I missed or wait till I eventually go back to Canada and sort it out and see if I was a non resident.

  • Kira November 26, 2012, 12:49 pm

    Hello,
    This is all really great information and I notice you’ve been answering some questions, I was wondering if I could ask one, too: Is it “better” to transfer tuition tax credits to a parent/grandparent or to carry them forward? By “better” I mean what would be the best way to get the most money out of the tax credits in the end.

    • Tina Worth August 11, 2015, 12:01 am

      It really doesn’t matter because now or later, and no matter the bracket of the person who claims it, the value of the credit will be the same. Just make sure that if you are not being supported by the person who is claiming the credit that they pay the value of the credit to you. And then the only difference between now and later is that if you get it now the money could be earning interest or reducing the amount you need to borrow next year.

  • FT FrugalTrader November 26, 2012, 6:22 pm

    @Kira, non-refundable tax credits are only good is there is tax payable. So if you have income for that year, or you have paid in tax, then you can use the credits. What we did was carry forward the tax credits until we started our careers, then claimed them.

  • Maureen March 19, 2017, 7:44 pm

    My grandson goes to a college in Ontario and doesn’t have a tax. Income. He is transferring half of his education amts to his mother. He has approx 10,000 to carry forward over the last 2 years. Can he use any left over for when he dies have a tax, income? Say in 2 or 3 years? And can it be prorated over a few years while working? Thanks

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