What are tuition tax credits?
The amount you pay in university tuition gives you a tax credit, which is like a coupon you may apply to your tax bill.
You get an official tax receipt or form from your university each year showing the tuition you paid for that tax year. (Tuition fees you pay to a med school outside Canada also count for the credit.) You use this amount to calculate your tuition tax credits and claim them on your own tax return.
Your tax credits will then reduce the amount of tax you have to pay. There’s a federal tuition tax credit and, except in Alberta, Ontario and Saskatchewan, a provincial or territorial tuition tax credit as well.
How do you calculate your tuition tax credits?
To calculate your tuition tax credit, multiply the total amount of tuition you paid (on the receipt or form you received from your university) by the federal tax credit rate for the federal tax credit. For 2020, the federal tax credit rate is 15%.
If you live where there is a provincial or territorial tuition tax credit, also multiply your total tuition paid by the provincial or territorial tax credit rate. In provinces and territories with tuition tax credits, the tax credit ranges from a low of 4% in Nunavut to a high of 15% in Quebec.
Tip: You can learn more about provincial and territorial tax rates and credits here.
How do tuition tax credits help your tax bill? And how do you calculate the value of your tuition tax credits?
Your tax credits get applied directly to your tax bill.
When you prepare your tax return, add up your taxable income and all the deductions from your taxable income. This will give you a tax amount owing — both federal tax and provincial or territorial tax — before credits are applied.
Sarah has paid tuition for eight years. She lives in British Columbia, graduated in 2019 from a four-year program, and also has a four-year undergraduate degree.
Adding up all of the tuition from her undergraduate university and med school, she paid $96,000.
- Sarah started working as a resident in 2020, and expects to earn $60,000.
- This would give her a tax bill of about $9,660 ($6,887 in federal tax and $2,770 in B.C. tax).
- To calculate her tuition tax credits, Sarah takes her $96,000 in tuition paid and multiplies it by 15% to get her federal tax credit of $14,440, and by 5.06% to get her B.C. tax credit of $4,858.
Sarah’s Tuition Tax Credits
|Total tuition paid =||$96,000|
|Federal tuition tax credit|
(Tuition x Federal tuition credit rate)
|$96,000 x 15% =||$14,400|
|Provincial/Territorial tax credit amount (B.C.)|
(Tuition x B.C. tuition credit rate)
|$96,000 x 5.06% =||$4,858|
|Total tuition tax credits (federal + provincial)||$14,400 + 4,858 =||$19,258|
|Estimated 2020 tax bill during residency in B.C.||$9,657|
|Tuition tax credits applied to 2020 tax bill|
(Tax credits – 2020 tax bill = )
|$19,258 – 9,657 =||$9,600 tax credits remaining|
In 2020, Sarah’s total tax bill would be covered by her tuition tax credits — and she would also have additional credits left over to apply to her 2021 tax bill.
The tuition tax credit is automatically applied to your tax bill, and any excess that you don’t use is then applied to the next year you have a tax bill owing.
What if you don’t have any tax payable?
When you’re a university student, you typically don’t have much — if any — taxable income. This means you also don’t have any tax payable. So what do you do to get value from your tax credits?
One option is to transfer tuition amounts you paid to a “supporting person,” so they can claim the tuition tax credit. This may be a parent, grandparent, spouse or common-law partner. You can transfer up to $5,000 of tuition costs to a supporting person each year. The tuition certificate you receive from your school includes a section for you to complete in order to transfer the current year’s tuition amount (up to a maximum of $5000).
Asif lived with his mother during his university studies, and because she supported him financially, he wanted to transfer some of his tuition credits to her — instead of waiting until he has taxable income to claim all the credits.
- For each of his three years of medical school, Asif transferred the maximum of $5,000 of his tuition amount to his mother. This allowed her to claim the tuition tax credit each year.
- $5,000 x 15% = $750 per year.
When he starts working as a resident, he will be able to apply the remaining tuition tax credits to his tax bill owing.
If you have questions about how to set up your finances during med school or as you prepare to work as a practicing physician, talk to one of our dedicated RBC Healthcare Specialists and see how they can help you get started.
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