# Forced to use tuition credit



## jumbalaya (Jan 17, 2013)

I have 20k unused tuition credit. Last year, I expected a certain amount for my tax refund, but got a lot more, because they forced me to take the tuition credit? I don't understand how this works, as it's a NON-refundable tax credit, right?

This year I expect a refund of $44, but I think the same thing is going to happen again... how do I prevent this?


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## MoneyGal (Apr 24, 2009)

You can't. Tuition credit must be used to the maximum extent possible. From the relevant CRA page: 

*Students must claim their tuition, education, and textbook amounts on their return and apply the amount that is required to reduce their own federal tax payable to zero*, before they can calculate and transfer an unused amount to an eligible individual, even if someone else paid their fees. However, the student may be able to transfer part or all of these amounts to his or her spouse or common-law partner (who would claim it on line 326 of his or her Schedule 1), their parent or grandparent or to their spouse or common-law partner's parent or grandparent (who would claim it on line 324 of his or her Schedule 1). 

The maximum amount you can transfer in a year is $5,000, minus the amount the student uses, even if there is an unused tuition, education, and textbook amount remaining. 

*Students can carry forward indefinitely and claim in a future year the part of their tuition, education, and textbook amounts they cannot use *(and do not transfer) for the year. However, if they carry forward an amount, they will not be able to transfer it to anyone. They have to claim their carry-forward amount in the first year that they have to pay federal tax.

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


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## andrewf (Mar 1, 2010)

There's no reason to delay using the credit.


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## MoneyGal (Apr 24, 2009)

Well, that too.


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## jumbalaya (Jan 17, 2013)

Thanks. so I'm guessing my refund will increase due to the other REFUNDABLE tax credits I have?

secondary issue: I would like to minimize my taxes paid during the year so I don't get these large refunds. There's a TD1 form and T1213(?) I believe... how would I fill that out?


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## andrewf (Mar 1, 2010)

This will tend to become less of an issue over time, except for RRSP contributions. Yes, you can submit a form the reduce tax withheld at source, but a lot of employers are not keen about accepting these.


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## BigGuy (Feb 11, 2012)

Could somebody explain exactly how the tuition credit works? I went to a US school so I have about $150k for tax credit. If I made $50k this year and paid ~$10k in taxes would I get the $10k back and have $140k left of credit. Or is there some tax bracket calculation? Thank you!


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## MoneyGal (Apr 24, 2009)

In essence, that's what happens. The credit is used until your federal tax is reduced to zero...then any remaining balance is carried forward to next year's taxable income. There's no tax bracket calculation, the credit is applied to every dollar of federal tax no matter at what rate the tax is calculated.


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## BigGuy (Feb 11, 2012)

Thanks MoneyGal. So in summary I basically have the total amount of the credit as tax back from the government over the next couple years. Really makes you rethink how much education costs when you realize this

EDIT: sorry for any confusion, this was poorly worded on my part. $150k in tuition credit not paying taxes for 3 years for me which I consider to be a large portion of tuition that most don't think about


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## MoneyGal (Apr 24, 2009)

:encouragement:


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## OptsyEagle (Nov 29, 2009)

BigGuy said:


> Thanks MoneyGal. So in summary I basically have the total amount of the credit as tax back from the government over the next couple years. Really makes you rethink how much education costs when you realize this


That is not true. You do have the total amount of tuition credit, of which you will save approximately 20% of that credit amount, in taxes. So if you paid $150K in tuition, you will save approximately $30,000 in tax, not $150,000 in tax. 

The government is not stupid. If they paid you back, dollar for dollar, on your tuition, everyone would go to school, and it would make no difference to them if they actually learned something or just had a good time.


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## MoneyGal (Apr 24, 2009)

OE: I read that as "the total amount of the credit" (i.e., tuition paid * credit rate), not "total amount of tuition paid." The OP didn't say he was "getting his tuition back in taxes," he said he was getting "the total amount of the credit back" in taxes, which is true.


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## OptsyEagle (Nov 29, 2009)

BigGuy said:


> Thanks MoneyGal. So in summary I basically have the total amount of the credit as tax back from the government over the next couple years. Really makes you rethink how much education costs when you realize this


I was responding to this quote. This poster seemed to feel that the total amount of the credit (which is $150K in his case. WOW!) and he seem to think that he would get that much back in tax back. 

That is not correct. He gets about 20% of the credit in tax back. Big difference.


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## MoneyGal (Apr 24, 2009)

OE - I went back and read the whole thread; I agree that there is some uncertainty about what the OP thinks is the amount of the credit!


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## OptsyEagle (Nov 29, 2009)

I just wanted to clear it up for other posters. Before BigGuy goes out and spends another $150,000 on tuition, figuring that it is like putting money in the bank. 

He must be the smartest guy on the planet already. I don't think he needs anymore schooling. lol.


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## MoneyGal (Apr 24, 2009)

It's interesting - public education at the post-secondary level is already so highly subsidized in Canada, the tuition credits seem almost trivial. Many people think that Canadians (in general) have a greater responsibility to use their PSE to earn a taxable income, compared to our U.S. counterparts, as university education in particular is so highly subsidized by taxpayers as a whole.


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## jumbalaya (Jan 17, 2013)

OE: 20%? Are you sure? I have ~30k, and I definitely didn't spend 150k on 4 years of undergrad...


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## andrewf (Mar 1, 2010)

The tax value of the credit is only ~20% of the tuition expense. Spend $30k, you get a credit worth ~$6k in tax avoided.

MGL I agree. I realize how much subsidy I used going through PS. I don't begrudge the tax I pay now...


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## jumbalaya (Jan 17, 2013)

i spent 35k, and yet I have 30k credit... strange.


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## MoneyGal (Apr 24, 2009)

[shrug] you may be mixing together tuition credits, education credits, and textbook credits - three different things.


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## jumbalaya (Jan 17, 2013)

i'm getting this 30k number from the CRA myaccount(?) website - they might be combining the tuition and education credits


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## MoneyGal (Apr 24, 2009)

Tuition, education and textbook amounts are all combined and entered on Line 323 of the T1. 

FWIW I went and found the Income Tax interpretation bulletin on tuition credits and here is a reference to how the credit is calculated:

1. Subsection 118.5(1) sets out the circumstances under which a student may determine a tuition tax credit for tuition fees paid to educational institutions in and outside Canada. *In general terms, the amount of the tuition tax credit is determined by multiplying the lowest tax rate percentage referred to in subsection 117(2) by the amount of eligible fees for tuition paid for the year to a qualifying educational institution.* ... The lowest tax rate percentage has been 17% from 1988 to the date of publication of this bulletin. Thus, for example, if an amount of $2,000 has been paid for eligible tuition fees for 1996, the student is entitled to a tuition tax credit of $340 for 1996 determined as follows: $2,000 x 17%.

From http://www.cra-arc.gc.ca/E/pub/tp/it516r2/it516r2-e.html#P164_19587


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## MoneyGal (Apr 24, 2009)

Also, there are provincial education tax credits - they may be added to the balance shown on your CRA "My Account" statement (I don't know; it has been a long time since I dealt with tuition and education tax credits personally!)


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## jumbalaya (Jan 17, 2013)

yes, that must be the case - tuition, education, textbook, and provincial education all combined to make up 30k. still, seems high for a 17% credit... 

no complaints here!

Thank you, MoneyGal.


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## OptsyEagle (Nov 29, 2009)

jumbalaya said:


> yes, that must be the case - tuition, education, textbook, and provincial education all combined to make up 30k. still, seems high for a 17% credit...
> 
> no complaints here!
> 
> Thank you, MoneyGal.


Jumbalaya, I think you are mis-understanding the situation here or maybe I am mis-understanding your posts. 

If you spend $30K on tuition, you will get a tax credit equal to $30,000. That tax credit, when used on your tax return, is equal to about $6,000 of income tax saved, or 20% of that credit amount. The 20% is an approximation of both your federal and provincial tax savings, with the actual amount varying a little depending on your province of residence.


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## jumbalaya (Jan 17, 2013)

Sorry, I'm misunderstanding the situation. It turns out that I have 30k federal and 17k provincial (2012). Last year, they forced me to use 2.5k (triggering a similar tax refund - I didn't make much money at that time). It brought my carryover balance down from 32.5k (2011) to 30k. I don't see how the 20% plays into this.

Again, apologies for the confusion.

edit: say I have 12k of tax to pay - the credit I get would be limited to 20% of 47k = 9400?

I think this is what you're saying...


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## MoneyGal (Apr 24, 2009)

OptsyEagle said:


> Jumbalaya, I think you are mis-understanding the situation here or maybe I am mis-understanding your posts.
> 
> *If you spend $30K on tuition, you will get a tax credit equal to $30,000*. That tax credit, when used on your tax return, is equal to about $6,000 of income tax saved, or 20% of that credit amount. The 20% is an approximation of both your federal and provincial tax savings, with the actual amount varying a little depending on your province of residence.


Well, just to be very precise in language, in order to calculate the federal tuition tax credit, if you spend $30,000 in eligible tuition fees, you then multiply this amount by the lowest federal tax rate, which is currently 15%: http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html in order to get the amount of the non-refundable federal tuition tax credit. 

$30,000 * 15% = $4500

So the amount of eligible tuition fees is $30,000

The rate for converting eligible tuition fees to a tax credit is 15%

The total tax credit is $4,500


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## MoneyGal (Apr 24, 2009)

And then, in order to respond to jambalaya's most recent post, the credit must be applied to the maximum extent possible to reduce federal taxes to zero, and any remaining tax credit amount must be carried forward to the next tax year, at which point it is again used to the maximum extent possible to reduce federal taxes to zero, etc.


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## andrewf (Mar 1, 2010)

A tax credit of $30k doesn't mean you avoid paying $30k in tax. The credit is applied at the lowest marginal rate (about 20%), and deducted from your tax owing. So, $30k *20%= $6k in tax avoided that you would have otherwise paid without the credit.


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## MoneyGal (Apr 24, 2009)

I hope y'all are crossposting with me. 

If someone has $30K of tax credit, they avoid paying $30K in federal income tax. 

If they have $30K in eligible expenses, they avoid paying $4,500 in federal income tax.


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## MoneyGal (Apr 24, 2009)

jumbalaya said:


> Sorry, I'm misunderstanding the situation. It turns out that I have 30k federal and 17k provincial (2012). .


Just to be crystal clear, what are the words that immediately precede or follow the $30K and $17K numbers? These may be the _*amounts eligible for the credit*_ as opposed to the actual credit amounts.


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## jumbalaya (Jan 17, 2013)

I see. So this year would be the last year I get these credits, as my Federal tax is > 4,500. I should be expecting a big refund, then, as I paid federal tax off my paycheque throughout the year (overpayment).

It says Amount Available for Carry Forward. No mention of "amounts eligible for the credit" - I assume this is the actual Federal Tuition, Education and Textbook Amounts and Provincial Tuition, Education and Textbook Amounts (the titles that were given preceding the 30k and 17k, respectively)


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## MoneyGal (Apr 24, 2009)

OK, if the words "Federal Tuition, Education and Textbook amounts" preceded the number, then your federal tuition, education and textbook credit amounts are calculated as that number multiplied by the tax rate in effect for the lowest federal income tax bracket. If your number is $30,000 for the federal amounts, then your federal tax credit is $30,000*15%=$4,500.


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