A graduation present

You're about to complete your PhD after four or more years of post-post-secondary.  Do you know where your savings are? Think you have none? 

That's about $4200 shown above (no it's not mine...yet).  Looks pretty sweet though doesn't it? But if I had to choose between this stack of bills and the stack that could be waiting for us at the end of our degrees, I'd choose the latter.  You would too... 

What's the catch?  Is Tony about to ask us to sell long distance calling cards? I'll admit there is a bit of a catch, but I don't find it to be particularly unpleasant. You need to do a few things before you will be able to claim this windfall after graduation.

1) Get a job
2) File your taxes
3) Pay some federal/provincial income tax

Since items 1 and 2 are essentially non-optional, item 3 provides the only real constraint.  Item 3 requires that you maintain significant residential ties to Canada.  Some dry details are available here but suffice it to say that if you intend to live and work in Canada for a few years after graduation then you're all set.  If you don't, it gets a bit more tricky but there are still some options. So what is this windfall?   

Tuition, education, and textbook tax credits  

They come in two flavours, federal and provincial.  The federal credits apply to anyone living in Canada but the provincial credits can vary a bit depending on which province you intend to live in.  The easiest way to demonstrate how the credits work is to run through a quick example.  Let's first make some conservative assumptions; your degree is completed in 4 years, you pay $3000/term in tuition, attend 3 terms/year and intend to work in Ontario for awhile post-grad.


Federal Tax Credits: 

Tuition Credit Amount: $36000  ($3000/term X 3 terms/year X 4 years)
Education Credit Amount: $19200 ($400/month X 12 months/year X 4 years)
Textbook Credit Amount: $3120 ($65/month X 12 months/year X 4 years)

Provincial Tax Credits:

Tuition Credit Amount: $36000  ($3000/term X 3 terms/year X 4 years)
Education Credit Amount: $24288 ($506/month X 12 months/year X 4 years)


Alright so that's a total of $58320 in federal tax credits and $60288 in provincial tax credits by the end of the degree.  Once you start making some money, 15% of the total value of the federal tax credits will be deducted from the federal income tax you owe!  That's worth $8748!  As for the provincial tax credits, roughly 5% of their total value will be deducted from the provincial tax you owe.  That's good for another $3014 in your pocket!  In total, those four extra year's of school will return $11762 back to you - it's like we're saving by default! That stack of cash is roughly three times bigger than the one in the pic! 

Wait, there's more!  You can claim tuition, education, and textbooks amounts from undergrad as well provided that your parents did not claim you as a dependent and get you to transfer your credits to them. For example, if you spent some 4 years in undergrad, at 2 terms/year and $3000/term, then by the end of your PhD you would have $97200 in federal tuition credits and $100500 in provincial tuition credits!  This translates to avoiding the payment of some $20000 in tax! That's a spicy meatball!

Three additional points of interest:

1) You need to file your taxes and indicate the amount of tuition you have paid and the duration of your studies in order to take advantage of the tax credits.  This can be done retroactively, so all is not lost if you did not do this each year you have been in post-secondary.

2)  Depending on how much you make and the other tax deductions you can take advantage of, it may take some time to realize these benefits after graduation. However, if you're starting in the $40-60k/year territory it will not take more than a few years.

3) As long as your schoolin is at a level equivalent to a Canadian bachelor's degree or higher, you can claim tuition from any educational institution OUTSIDE of Canada (more on that here).  This is because the government would like to encourage Canadians educated abroad to bring their skills back home!

So there you have it!  I don't know about you, but I can't wait to open my graduation present!

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*Special thanks to my accountant buddies Scott and Evan for helping to clarify some of the finer tax details