Tuition credits are a non-refundable credit (line 32300) offered to students aged 17 or older attending post secondary studies. A non-refundable credit means that tuition credits can only be used to reduce your tax liability to zero, after your taxes payable reaches zero you cannot apply tuition credits to create a refund.
How Tuition Credits Work
You might ask yourself; how can I utilize my tuition credits; I see a large carry forward balance. You can utilize your tuition credits by earning taxable income. Once you have taxable income above the basic personal amount, your tuition credits will be applied against your taxes payable.
Therefore, some students see large refunds 1-2 years after they graduate, since they have a large carry forward tuition balance and a full-time income for the first time. The refund is not your tuition credits but the income tax your employer deducted on your pay cheques throughout the year.
Let’s say that Tom earned $45,000 in income in 2020. His taxes payable is approximately $4,766.
Quick overview of the calculation: $45,000 less the basic personal amount of $13,229 equals $31,771 in taxable income. Tom’s tax bracket is 15%, therefore he owes 15% on $31,771 which is $4,766. Tom would have to use $31,771 worth of tuition credits to reduce his $4,766 tax liability to zero.
Why do I only get a 15% Credit for my Tuition Credits?
All credits in Canada only provide a 15% reduction in tax liability. This means that credits provide a 15-cent reduction in tax liability against every dollar of taxable income. On the contrary, deductions such as direct employment expenses for self employed individuals provide a dollar for dollar reduction.
How do I determine my Tuition Credit amount?
Every year your school will provide you with a tax slip called the T2202 (formally known as T2202A), this slip highlights how many months you attended school (part-time or full time) and how much you paid in tuition for the year. As of 2019, this information is forwarded to the Canada Revenue Agency (CRA), for prior years you may have to contact your school for an additional copy of the originally mailed T2202A has been lost.
There are a few ways you can access this slip:
- School Portal
- CRA My Account (2019 plus)
- Via Mail
What is CRA my account?
CRA Account is a secure portal that lets you view your personal income tax and benefit information and manage your tax affairs online, which includes your Tuition carry forward balance. At Team Tax we highly recommend creating an account so you can view your tax information in real-time without any mailing delays.
Other Factors to Consider
It is important to consult a Tax Professional when completing your taxes. It is better to have your taxes filed correctly and in a timely manner, that way you don’t have to worry about getting audited by the CRA. When you are audited by the CRA, you may have to provide additional documents to support your claim. E.g. if you claimed tuition credits on previous tax returns you may have to provide the CRA your T2202 for that particular year.
There are other credits you can claim as well on your taxes related to school, one which includes interest paid on student loans. 15% of the interest you paid on your student loans can be used to reduce your taxes payable, resulting in more after-tax cash in your pocket.
The cost of a Tax Professional is easily outweighed by the professional competence of your Tax Accountant. At Team Tax we consider ourselves a value-added firm, we want to make your life as simple and stress free as possible! Contact us today and we assure to maximize your tax return and get you your refund as soon as ten days!