These days, it’s tough to fund education, whether the kids are in primary, secondary or post-secondary school. From new clothes and running shoes, to school supplies, books, post-school activities and the tuition itself, after-tax cash flow tends to flow. . .right out the door at a fast pace, particularly in the months of August and September.
The tax system can help—either now or at tax time—to shore up the bottom line for families. Over the next few weeks, we’ll be talking about the tax provisions you can and should take advantage of to help you get the best return on your educational investment.
On a high level, there are a variety of things to think about when it comes to intelligent strategies for education planning:
Investing for an Education: Many people know about the Registered Education Savings Plan and the Canada Education Savings Grant and Bonds the government provides to sweeten the pot on savings for post-secondary education. However, I find lots of people are unaware that tax free withdrawals can be made from an RRSP under the Lifelong Learning Plan. This is a great way to leverage your RRSP accumulations when educational opportunities arise. Of course, the RRSP deposit itself will generate tax savings that can be used for education funding too, provided the contributor was taxable.
There are many other savings strategies that can help you accumulate money for school. For example, you can use your Tax Free Savings Account. Remember the savings are tax free and you never lose the TFSA contribution room, so you can replenish the deposits when you get your big job later.
If you pull money out of a non-registered savings account, you may wish to think about tax efficiency. For example, if you generating capital gains, can they be offset with prior losses?
Or perhaps you should be transferring the gains to your favourite charity for a tax free gain, and a donation receipt to fund more education?
Receipt keeping is really important too, as it can help you maximize your tax savings during tax season. Following are some tax saving tips on what’s claimable and what’s not, for those in primary and secondary school. In another article, we’ll tackle post-secondary school:
Tuition Fees and Textbook Expenditures. Unfortunately these costs, including fees paid to private school are usually not deductible, however, a couple of exceptions exist for tuition fees paid to religious and secular schools, explained below.
Charitable Portions of School Fees Paid: Tuition fees paid to religious schools are not considered to be a qualifying expense for a charitable donation in general, but there are two exceptions:
- Religious schools. Fees paid to schools that teach religion exclusively are considered to be a charitable donation if the school is a registered Canadian charitable organization which issues official charitable receipts.
- Secular schools. Certain schools which operate in a dual capacity providing both secular and religious education. They may issue a charitable donation receipt for a portion of the fees paid under certain circumstances.
Private Lessons or After School Activities. Generally private piano and dance lessons are not deductible, however those students taking lessons at a post-secondary educational level may be able to claim tuition fee, textbook and education credits.
Child care. Costs of child care may be deductible for parents who go back to school or carry on research for which a grant was received. Expenses are deductible for the care of dependent children who were under the age of 16 (at any time during the year) or who are physically or mentally infirm.
NEXT TIME: DETAILS ON CLAIMING CHILD CARE