When you or an employee returns to the classroom to follow work-related courses or obtain a higher degree, some of the costs can be deducted and others are eligible for tax credits.
Other factors to consider and discuss with your accountant include:
The tuition tax credit may be used for fees to take exams required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified in order to practice a profession or trade in Canada. Ancillary fees and charges are also eligible for the credits.
You may deduct tuition fees for auditing courses where you attend lectures but don’t take exams or receive credit.
You may claim a tax credit for transit passes generally totalling at least one month’s duration.
You may claim a GST credit if you are eligible.
In general, expenses are not deductible if they are eligible for tuition, education or other tax credits, if they are capital expenditures that produce a lasting benefit to the taxpayer or if they are personal or unreasonable. You could not, for example, deduct the costs when:
- Medical general practitioners train to qualify as specialists;
- Lawyers take an engineering course unrelated to their legal practice, or
- An employee takes university or other courses leading to a degree or other certificate unrelated to your business.
Employers who pay for or reimburse employees for their tuition may deduct reasonable amounts as a business expense regardless whether the business or the individual benefits from the course. If your company provides an employee or former employee with a scholarship or bursary on the condition that the employee will return to the business, the amount paid is considered employment income.
Employees incur taxable benefits when courses are business-related and not directly related to your business (e.g. stress management, employment equity, first aid, and language courses) or when the employee develops personal interests or technical skills not related to your business.
You may deduct as a business expense the costs related to courses and training that maintain, update or upgrade an existing skill or qualification. For example, the following costs would generally be tax-deductible:
- Professional development courses taken as required or recommended by a professional body to maintain professional standards;
- Tax courses taken by lawyers or accountants who are qualified to do tax work, whether or not they have previously been involved in such work, and
- Courses on electronic ignition taken by the owner of an automobile repair shop.
Eligible expenses include travel, food and beverages and lodging. They do not include tuition and other costs for which there are tax credits. Thus, if you or an employee plans to obtain an MBA, you could not deduct the costs, but they would generally be eligible for tax credits.
In general, tax credits may be claimed for tuition fees if they:
- Total more than $100 at a post-secondary school level paid to a university, college, or other educational institution in Canada;
- Total more than $100 for a student who is at least 16 years old at the end of the taxation year with skills for (or improve the student’s skills in) an occupation, paid to an educational institution in Canada certified by the Minister of Human Resources Development;
- Total more than $100 at a university, college or other educational institution in the United States to which a student living near the Canada-U.S. border commutes; or
- Are for full time courses at a university outside Canada that last for at least 13 consecutive weeks and lead to a degree.
You cannot claim any amount less than $100 for the year or the costs of books, room and board, or student association fees. Otherwise, you can claim total fees. This could also include the cost of courses and seminars related to your work. Individuals taking courses as a condition of their job can claim the costs as an employment expense rather than as a tax credit.
The tuition tax credit may be claimed whether the students or the company pays the fees. However, if your business pays for or reimburses employees for all or a portion of their tuition, they may claim the credit only if the amount is included as a taxable benefit.
An education amount tax credit and a textbook credit can be claimed for each whole or part month in which a taxpayer was enrolled in a qualifying program. The amount of credits varies depending on whether the person was a full-time or part-time student. Individuals may claim the full-time credit if they attended only part-time and are eligible for the disability tax credit or would be eligible for the credit except that their disability is not severe and prolonged.
Unused Credits and Lifelong Learning
Unused tuition, education and textbook credits may be carried forward indefinitely to offset future income, or may be transferred to a spouse or common-law partner or to a parent or grandparent of you or your spouse or partner. The transfer of costs should not exceed more than the individuals can use on their tax returns. Any excess costs then can be carried forward.
If you have a Registered Retirement Savings Plan (RRSP), you may withdraw money tax-free to pay for qualifying full-time education and training for yourself or your spouse or common-law partner. However, you cannot withdraw money for both at the same time. If you are disabled, you can use the plan for both full-time and part-time education and training.
You may participate in the Lifelong Learning Plan as many times as you want, but you may not begin a new plan before the end of the year in which all previous withdrawals are repaid.
Consult with your accountant for more details.