Recent Tax Credit Changes May Affect Students for 2017

June 14, 2017

Summer's almost here and students everywhere are eagerly anticipating a well-deserved break from school. However, if you're a parent of a child who is either about to begin post-secondary school this September, or if you already have a child who is a post-secondary student, your concerns over the cost of post-secondary education don't take a break over the summer months.

In our 2016-09 Tax Factor article “Back to school: tax saving opportunities for students”, we explored some of the tax-saving opportunities currently available to students (and their parents) to assist them in offsetting some of the high costs associated with post-secondary education. One of the options discussed in that article was to claim tuition and education tax credits. Since that article was published, the federal government has enacted changes to eliminate the federal education and textbook credits, beginning in 2017. Some of the provincial and territorial governments have followed suit, and have announced their own changes to tuition and education tax credits. These changes have not been uniform, so students will need to know what credits are still available to them in their province or territory of residence. In the interest of ensuring that students are able to plan effectively to save as much tax as possible, this article will summarize the recent changes to both the federal tuition and education tax credits and the related credits offered by the various provincial and territorial governments.

What are the tuition and education credits?

Before we look at the recent changes impacting the tuition and education tax credits, it may be helpful to provide a quick reminder of how the tuition credit works and how the education credits have worked until now. For the purposes of this article, we will review only the federal tuition, education, and textbook tax credits. Where available, the provincial and territorial tuition and education tax credits are similar, although amounts and thresholds may vary depending on where the student resides. As well, you should note that only Nunavut and the Yukon offer a textbook credit. All other jurisdictions offer only an education credit.

The federal tuition credit is a non-refundable tax credit equal to 15% of the amount of eligible tuition paid by a student to a designated educational institution in Canada, or to a university outside Canada in defined circumstances, as long as amounts paid are more than $100. Generally, a designated educational institution includes a university or a college, but courses taken at other educational institutions may also qualify as may those taken on-line or via correspondence.

Prior to 2017, the federal education and textbook tax credits were also available to qualifying students of an eligible educational institution. For each month that a student was eligible to claim the education credit, they were also eligible for the textbook credit. For 2016, full-time students were able to claim a combined amount of $465 per month, while part-time students were eligible for a combined amount of $140 per month. Note that these credits are often combined and referred to collectively as “education tax credits”.

Any unused amounts in respect of a student's tuition and education tax credits could be carried forward to future years. It is also possible to transfer up to the equivalent of $5,000 in current year tuition and education amounts to the student's spouse or common-law partner, or to their parent or grandparent, subject to certain requirements and limitations. Note that the amount allowed to be transferred for provincial purposes may differ from the federal limit of $5,000.

Changes to the federal tuition and education tax credits

As mentioned above, in 2016 the federal government passed legislation that eliminated the federal education and textbook tax credits, effective January 1, 2017. As a consequence, 2016 was the final year for which these federal education tax credits could have been claimed. That being said, the carry-forward rules continue to apply such that any unused education tax credits that arose prior to 2017 will remain available to be claimed in 2017 and subsequent years.

While the amount of the federal tuition tax credit remains unchanged for the current taxation year, in its 2017 budget the federal government proposed to extend the eligibility for the tuition credit to certain fees paid for occupational skills courses offered at post-secondary educational institutions in Canada that are not at a post-secondary school level. When enacted, this will apply to fees paid in respect of courses taken after 2016, if the individual has attained the age of 16 before the end of the tax year. Measures were also proposed to ensure that students who fall under this category are also eligible for the scholarship and bursary exemptions.

Changes to the provincial and territorial tuition and education tax credits

While in 2016 all of the provinces and territories offered tuition and education credits (with the exception of Québec, which does not have an education credit), several have recently either made, or proposed to make, changes to their own tuition and education credits. For many provinces and territories, the legislation governing their education credit (and textbook credit, where applicable) is directly tied to the rules as specified in the federal Income Tax Act. Where this is the case, if no legislative action is taken on the part of the provinces or territories, their education (and textbook) credit will be eliminated by default as a consequence of the elimination of the federal credits. We have noted below those jurisdictions where legislative changes have been announced to either maintain or eliminate these credits. With respect to the remaining provinces and territory not specifically mentioned below, we will await announcements indicating whether tuition and education credits will be maintained for 2017 and future years.

Ontario: In its 2016 budget, the Ontario government announced that it would be eliminating both the Ontario tuition and education tax credits in 2017. Effective for 2017, Ontario students will be able to claim the provincial tuition tax credit for eligible tuition paid in respect of studies up to and including September 4, 2017, and will be able to claim the education tax credit for months of study before September 2017. The eligible portion of 2017 tax credits will continue to be transferable to a qualifying family member. Note, however, only tax filers who are resident in Ontario on December 31, 2017, and who have unused Ontario tuition and education tax credits available for carry-forward, will be permitted to claim the credits in future years.

Saskatchewan: As part of the measures announced in its 2017 budget, the government of Saskatchewan announced that both its tuition and education tax credits would be eliminated, effective July 1, 2017. As a result, tuition amounts paid between January and June 2017 can be claimed and the education amounts in respect of those months will be eligible for the education credit. Unused amounts earned prior to July 1, 2017 can be carried forward to subsequent taxation years.

British Columbia: In its 2017 budget, the BC government proposed that it would be discontinuing the province's education tax credit, effective January 1, 2018. If this proposal is reintroduced and passed by the new government post-election, 2017 will be the final year for which this credit can be claimed. That being said, under the proposal, any unused education credits carried forward from years prior to 2018 will still remain available to be claimed in 2018 and subsequent tax years.

Alberta: The government of Alberta recently passed legislation containing technical amendments that ensure that the province's education tax credit and related carryforward provisions are no longer tied to the federal tax legislation. These amendments allow the province to maintain its education tax credit for 2017 and subsequent tax years.

Manitoba and Prince Edward Island: These two provinces have both announced that they will not be eliminating their province's education tax credit. Rather, consequential changes will be made to their respective income tax legislation in order to maintain these credits for 2017 and subsequent tax years.

Nunavut and Northwest Territories: Each of these territories have recently passed income tax legislation to retain their education tax credit (and in the case of Nunavut, its textbook tax credit as well) for 2017 and subsequent taxation years.

New Brunswick: The government of New Brunswick recently passed legislative changes to eliminate the province's tuition and education tax credits, effective beginning January 1, 2017. As a result, 2016 was the final year that these credits could have been claimed. However, any unused tuition and education credit amounts from years prior to 2017 are still available to be claimed directly by the student in 2017 and subsequent taxation years.

Claiming the full amount of available federal and provincial/territorial tuition and education tax credits can assist in offsetting the cost of post-secondary education. In light of the recent changes to the federal tuition and education credits, as well as to those offered on a provincial/territorial level, it will be important for students (or their parents) to speak to their local BDO advisor or submit a contact request in order to determine the extent of claims available to them for 2017 and subsequent tax years.

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The information in this publication is current as of June 7, 2017.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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