# Using all tax credits in one year?



## clovis8 (Dec 7, 2010)

I finished my PhD last year and made real money for the first time in my life in 2010. I have 30k in tuition and tax credits which if I use all this year I will get a 7k refund. 

What would be the benefit in using some this year, getting a smaller refund, and using the rest next year?

It seems to me getting the max refund this year is the best idea because I can use the money to invest right now.


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## plen (Nov 18, 2010)

Depends how much of an increase your income will be this year compared to last year.


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## clovis8 (Dec 7, 2010)

plen said:


> Depends how much of an increase your income will be this year compared to last year.


assuming my income will be roughly the same then take it all this year right?


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## plen (Nov 18, 2010)

clovis8 said:


> assuming my income will be roughly the same then take it all this year right?


It could depend also on how much you're making and whether you should be taking all those credits.

Try working out the scenarios here and add the bottom line for both years to get the result. 

If you were to get more by using some of the credits next year, then decide whether the difference you would make would be attainable in an investment suitable to your risk tolerance that you'd make this year. 

Simple example: 

Scenario A) You take all the credits this year and get a return of $7000 this year and $500 next year = $7500 
Scenario B) You only use half the credits this year and get a return of $4000 and you use the other half next year and get a return of $4000 = $8000

The second scenario nets you $500. If you were to invest $7000 this year to attain a $500 profit you'd need a 7.1% rate of return to surpass the difference the tax credits would make.

Make sure to input all other credits used in 2010 and assumed in 2011 and keep those numbers same in both scenarios.

I've been considering this very thing too. Despite the numbers, a part of me just wants the money now and there's something to be said for that. Specifically I want to make sure I have the opportunity to jump in at some low points in the market.


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## dagman1 (Mar 3, 2010)

It's a tax credit (rather than a deduction). It doesn't matter when you use it, you'll get the same total refund. So use it now.

It would do you some good (all of you) to learn some basic tax concepts: http://blog.taxresource.ca/what-is-the-difference-between-personal-tax-credit-tax-deductions/


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## GeniusBoy27 (Jun 11, 2010)

+1 to dagman. 

It makes no difference on the total refund. Claim it asap.


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## Sampson (Apr 3, 2009)

Depends on what 'real money' means.

If you expect your salary to grow quickly, then if you can use your credits to bring your taxable income down a bracket or two, then it is worth it. If you claim the maximum, and it doesn't bring you down to the next lower bracket, AND you expect your salary to grow, then maybe it is worthwhile to hold off claiming all your credits at once.


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## Ben (Apr 3, 2009)

Use the full tuition tax credit this year. 

It's a credit, not a deduction, so there's no playing around to be done with marginal tax rates in current and future years. Credits work at the lower range of your income, by raising the level at which income taxes kick in. So, if the basic amount is currently around 10k, a tax credit of 5k will result in paying no tax on the first 15k of your income.

Keeping a tax credit around for a future year amounts to giving the government an interest-free loan.


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## clovis8 (Dec 7, 2010)

I think using it all now makes the most sense. Thanks for the advice.


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## OptsyEagle (Nov 29, 2009)

I don't know if it has been said yet, but take it all at once is the best advice as long as it doesn't drop your tax owing to zero, where some of the tax credit is being lost. If you still own tax when you are done using all of them, then use them all.

Now that you are making real money ... you are going to get to pay them back 100 fold anyways, so enjoy the tax savings. That was their investment in you ... and now they want their dividends.lol.


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## warp (Sep 4, 2010)

dagman1 said:


> It's a tax credit (rather than a deduction). It doesn't matter when you use it, you'll get the same total refund. So use it now.
> 
> It would do you some good (all of you) to learn some basic tax concepts: http://blog.taxresource.ca/what-is-the-difference-between-personal-tax-credit-tax-deductions/


Absolutely spot-on!
The correct answer.

Use it now..get the money into your pocket now, as long as you have taxes owing on your income.


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## ghostryder (Apr 5, 2009)

All if this is moot.

You CANNOT choose when to use tuition and education credits. They MUST be used in the year they are incurred to reduce your tax payable to zero. Then, and only then, you carry over any you don't need to the next year.

Then in the next year the same rule applies. You MUST use all the T& E credits you have to reduce your tax payable to zero. Then if there is any left, you can carry forward.

You CANNOT choose to carry them forward.


To be really techical, the ITA says that the amount you get to carry forward is the amount of T&E credits you have left over after you subtract the amount you would need to reduce your tax payable to zero, whether you claim the credits or not. Techically you cannot be forced to use the credits, but if you don't claim them, you would lose them. 

Practically speaking CRA will use up your T&E credits as soon as they can be used to reduce your tax payable. You could INSIST that they not do this, but your carry forward amount would be the same whether you used the T&E credits or not. But why would anyone do that?

Could you imagine trying to explain this to a tax court judge when you appeal your re-assessment (when CRA applies your credits even though you didn't)?

"Yes your honour, I am objecting to the CRA applying credits that are to my benefit. I would like to voluntarily pay more income tax than I legally am required to...."


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## warp (Sep 4, 2010)

You are right of course,,,,

This just shows AGAIN, as I have said many times on this Forum, how ludicrous and complicated our tax system has become.

Average taxpayers are lost in the wind, and so called "tax prepayers" are , many times, not much better.

The question is : Why should taxpayers feel they have to pay someone to prepare their taxes in the first place!

Doing your taxes should be a reasonable exercise , which any taxpayer with half a brain could understand and complete.

As it is now,,,it is so complicated and convoluted, and full of nensense, that average taxpayers just throw their hands in the air.

Flat tax!!
One page returns!

I'd love to be able to elect a leader who has the foresight, common sense, and balls to make it happen,,,but Im not holding my breath.


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## Square Root (Jan 30, 2010)

warp said:


> You are right of course,,,,
> 
> This just shows AGAIN, as I have said many times on this Forum, how ludicrous and complicated our tax system has become.
> 
> ...


Actually I think our tax regime is pretty simple (at least the personal side) I do my own taxes. Some would say I have a fool for a client. I actually enjoy doing them. Do my mother's and daughter's as well. Software is inexpensive and works very well. I believe the US system is more complicated but don't have any direct knowledge of this. I think it is a real advantage to understand taxes when it comes to DYI investing?


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## warp (Sep 4, 2010)

Square Root said:


> Actually I think our tax regime is pretty simple (at least the personal side) I do my own taxes. Some would say I have a fool for a client. I actually enjoy doing them. Do my mother's and daughter's as well. Software is inexpensive and works very well. I believe the US system is more complicated but don't have any direct knowledge of this. I think it is a real advantage to understand taxes when it comes to DYI investing?


I do my own taxes too...as well as most of my families returns.

I do mine by hand.....paper and pencil.

What drives me nuts is all the nonsense you have to go thru to complete them.

Most regular working people find even the simplest ( to us) tax return daunting. Why should that be?

Last year I got 30 tax slips...t3, t5,T6041, etc etc.
Each had several different income types on them.

Also the federal rates, inclusions , deductions, credits, etc etc, are different from the provincial ones, so you have to do the return TWICE!!

its always a nightmare!!

Let me add up all my income...give me a few deductions.....take your share!
Lets say 15%...let all the layers of govt fight over that one amount I send in.


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