The government gives you money later than when you really need it.
Author: Allan Hall
As a university student, one of the most depressing things that you can do is thinking about the total cost of your education. To reduce the cost of getting a post-secondary education, one of the things that the federal and provincial government have done is to offer non-refundable educational tax credits to students. According to the Canada Revenue Agency’s 2014 Preliminary Statistics, these educational tax credits cost the federal government $1.79 billion annually. It is hands down the largest form of financial aid that is given to students.
The post-secondary tax credit at the federal level is 15 per cent of the cost of tuition plus $465 for each month the student is enrolled full-time. The value and structure of educational tax credits from their provincial government counterparts vary by province. For a University of Regina Arts student taking five courses per semester, this adds up to approximately $1,520 in federal educational tax credits per year. When you include the educational non-refundable tax credits offered by the province of Saskatchewan, that number increases to $2,578 annually. So essentially, 40 per cent of a Saskatchewan student’s tuition will be paid for by tax credits.
While that seems like a great figure, the issue with tax credits is how they are issued. Because they are non-refundable tax credits, they can only be used to offset taxes owed. The non-refundable tax credit can be carried forward into future years until the individual has a high enough taxable income to use them. Because the vast majority of undergraduate students don’t earn enough to be taxed while they are attending university full time, this makes the tax credit functionally useless while they are in school.
This is a horrible way to provide financial assistance because it’s providing help to students after they’ve finished their studies instead of providing it to them when they would need it the most while in school. These tax credits do nothing to reduce the expensive up-front costs of obtaining a post-secondary education. This is the tax credit equivalent of throwing someone that was drowning a life preserver after they’ve been given CPR.
Students also have the option of partially transferring the educational tax credits to a parent or guardian, but there are some inherent issues with that as well. The ability to transfer some of the educational tax credit to a family member provides a somewhat perverse unequal benefit to those in different socioeconomic households. Students from higher income households, which typically are more able to financially assist their children, receive a far greater benefit than those from low-income households because the tax credit is used to offset taxable income. According to the Canada Revenue Agency, those with incomes exceeding $55,000 accounted for over 70 per cent of all education tax credit transfers from their children.
Educational post-secondary tax credits in Canada are distributed in a ridiculously inefficient manner. It does a mediocre job at providing financial support to students when they need it. It would be a far greater use of funds if the government were to make these tax credits fully refundable or to simply just abolish them and use the savings to lower tuition or give out grants.