Personal Finance

help me appreciate this

  • Last Updated:
  • Apr 19th, 2014 8:16 am
Tags:
None
Jr. Member
Mar 21, 2013
178 posts
7 upvotes
Toronto

help me appreciate this

I have approximately 250k in federal and 240k in provincial tuition credit; also have healthcare corporation. my knowledge in taxes is limited; please help me understand how these credits can help me with taxes?

thanks so much
32 replies
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
Tuition reduces your taxes at 15% for fed and 5.05% prov (ON) of the tuition value. So if you paid $37,500 in federal tax, your 250k tuition brings that down to nothing. I have no idea what you mean by healthcare corp.
Sr. Member
May 24, 2013
793 posts
285 upvotes
I still don't quite understand. I have about 30k in prov and 30k in federal. How are these numbers calculated? I did four years of school at around 8k per year.

This is a non-refundable credit, right? So I can use all 60k (?) to reduce tax owing in the future, right, or no?
Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
If you make 100k and you have 30k in tuition credits, you get taxed at 100-30k = 70k
Deal Fanatic
User avatar
Feb 7, 2008
5861 posts
777 upvotes
Ottawa
Kasakato wrote: Tuition reduces your taxes at 15% for fed and 5.05% prov (ON) of the tuition value. So if you paid $37,500 in federal tax, your 250k tuition brings that down to nothing. I have no idea what you mean by healthcare corp.
He/she is incorporated?
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
theBasher91 wrote: I still don't quite understand. I have about 30k in prov and 30k in federal. How are these numbers calculated? I did four years of school at around 8k per year.

This is a non-refundable credit, right? So I can use all 60k (?) to reduce tax owing in the future, right, or no?
Theres multiple components. Tuition paid, a fixed textbook amount and fixed expenses amount, based on the months you were in school. Since your credits are lower than even your tuition I assume some must have been consumed in previous years.

You cannot add the credits - they are federal and provincial amounts for the respective taxes.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
Luckyinfil wrote: If you make 100k and you have 30k in tuition credits, you get taxed at 100-30k = 70k
No. Thats not how tax credits work.
Sr. Member
User avatar
Oct 24, 2011
623 posts
180 upvotes
Timmins
Kasakato wrote: No. Thats not how tax credits work.
+1
The credits are a non-refundable credit that help to reduce tax owing; they are not a direct deduction against income.
Sr. Member
Jan 16, 2010
566 posts
123 upvotes
Faith786 wrote: I have approximately 250k in federal and 240k in provincial tuition credit; also have healthcare corporation. my knowledge in taxes is limited; please help me understand how these credits can help me with taxes?

thanks so much
Don't know what you mean by healthcare corporation - you will need to expand on that. Do you mean your income is through a (your own) corporation?

As for your tuition credit, think of it like this. It essentially means that for your next $240k of income for your life, you will not pay any federal and provincial taxes. The next $10k after that, you would only pay federal taxes.

The value of the tax credit is not a literal $ for $ return to you, it just reduces your income for taxation purposes by that amount. The actual $ value is dependent on the tax rate and your income level - Canada has a progressive tax system that taxes at higher rates the higher you earn.

Perhaps you should seek advice of an accountant. Given your high tuition amounts, I am guessing you're in the medical field with a high potential for earning. It may be preferable to only partially use your credits to bring your income down to a lower tax bracket, rather than using all of the credits in the shortest possible time. An accountant, or financial planner with tax experience, can sit with you and probably help you maximize the use of those credits.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
rasadam wrote: Don't know what you mean by healthcare corporation - you will need to expand on that. Do you mean your income is through a (your own) corporation?

As for your tuition credit, think of it like this. It essentially means that for your next $240k of income for your life, you will not pay any federal and provincial taxes. The next $10k after that, you would only pay federal taxes.

The value of the tax credit is not a literal $ for $ return to you, it just reduces your income for taxation purposes by that amount. The actual $ value is dependent on the tax rate and your income level - Canada has a progressive tax system that taxes at higher rates the higher you earn.

Perhaps you should seek advice of an accountant. Given your high tuition amounts, I am guessing you're in the medical field with a high potential for earning. It may be preferable to only partially use your credits to bring your income down to a lower tax bracket, rather than using all of the credits in the shortest possible time. An accountant, or financial planner with tax experience, can sit with you and probably help you maximize the use of those credits.
Almost correct wrt the tuition credits. Non refundable tax credits are applied at the lowest brackets (15% for federal and 5.05% for ON). Income is taxed progressively. This means that any income earned above the lowest brackets (and $250k most certainly will), is taxed at a rate higher than the credits you have, meaning you are paying a discounted tax rate.
Deal Fanatic
User avatar
Apr 11, 2008
5754 posts
475 upvotes
As I understand it, you can't do anything with tuition credit anyway. Unlike RRSP, they have to used until you have no tax due. So really, just follow the rules every year, it will work out by itself.
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
Archanfel wrote: As I understand it, you can't do anything with tuition credit anyway. Unlike RRSP, they have to used until you have no tax due. So really, just follow the rules every year, it will work out by itself.
What would do you, other than claim it?
Deal Fanatic
User avatar
Apr 11, 2008
5754 posts
475 upvotes
Kasakato wrote: What would do you, other than claim it?
Exactly. It's a tax credit, not a, whatever RRSP is called. Just claim it according to the rule and don't worry about what it can do.
Sr. Member
Jan 16, 2010
566 posts
123 upvotes
Archanfel wrote: As I understand it, you can't do anything with tuition credit anyway. Unlike RRSP, they have to used until you have no tax due. So really, just follow the rules every year, it will work out by itself.
He said he has a healthcare corporation - as such I am expecting that he is being paid through his corporation depending on the structure. He may have some options to structure the income to minimize use of the education credits by restructuring how he pays himself, depending on his financial goals.

There are probably some options there to minimize the total tax burden.
Jr. Member
Mar 21, 2013
178 posts
7 upvotes
Toronto
yea I have healthcare corporation....paying myself using corporation; would calling my payment 'salary' more benificial than calling it 'dividend' taking into account my tuition credits? which way is tax minimized?
Sr. Member
Sep 9, 2012
623 posts
156 upvotes
Edmonton
Faith786 wrote: yea I have healthcare corporation....paying myself using corporation; would calling my payment 'salary' more benificial than calling it 'dividend' taking into account my tuition credits? which way is tax minimized?
It's a lot worse to take the dividends, as the tuition credits will take precedent over the dividend tax credit.

As a side note, you don't just "call it" dividends or salary, both have separate tax implications.
Sr. Member
Jul 18, 2009
679 posts
103 upvotes
When you have a corporation, an accountant can add a lot of value by figuring out the best way to pay yourself - i.e. best mix of salary/bonus or dividend to minimize your taxes. Plus advising you on which expenses you can write off and how best to split your income with a spouse or adult children. Which allows you to focus on making those big healthcare dollars rather than teaching yourself accounting. DIY is NOT always best.

(Given that you seem new at this, do you know the requirements for keeping up your minutebook? You should also talk to a lawyerto set up proper record keeping.)
Deal Addict
Apr 9, 2008
2944 posts
247 upvotes
Toronto
250k in tution credits???

how did that happen?
Deal Expert
Mar 25, 2005
22706 posts
3697 upvotes
bsobaid wrote: 250k in tution credits???

how did that happen?
Undergrad, masters, PhD.
Deal Fanatic
Aug 22, 2005
7963 posts
1142 upvotes
Sounds like you're an MD, and have a corporation. Get an accountant.

Top