Calculated Thought: Student tax changes afoot

Columns October 5, 2016

Students who are inclined to save will feel the crunch from recent changes to federal student benefits.

The education and textbook tax credits save working students up to $558 per year. Analysts argue that this doesn’t help students who may not be able to afford the up-front costs of post-secondary education (you have to wait for the tax refund), and worry that since the credits are not income-tested, benefits mainly go to wealthier students and their families.

As of January 1, 2017, these tax credits will be no more. Replacing them will be an increase to the Canada student grants for low and middle-income families. These grants offer $3,000 (up from $2,000) and $1,200 (up from $800) to low- and middle-income families, respectively, for those who qualify.

Calculated Thought is a column dealing with student finances that is featured in every issue of Nexus.

The federal budget proposes that the money saved by slashing these tax credits will fund the increase to the grants. There’s a caveat: you must be eligible for federal student aid to qualify for the grant.

However, this leaves out some students who may meet the income requirements. If a single, financially independent student makes less than $24,144 a year, they meet the income requirement for the low-income grant. Students are assessed as in need of funding based on the equation “educational costs – student resources = financial need.”

Let’s say a student has an income of $20,000 and has no assets (cash, RRSPs, a car, etc.), and their assessed need is $5,000. Up to $3,000 is awarded under the grant, and the remainder will be a loan. If a student with the same income has assets exceeding that need of $5,000—say, $3,001 in the bank and a used car worth $2,000—they are assessed as needing $0 in financial aid, and no grant is awarded.

Was the tax credit fairer? Although it is admirable that this change aims to provide a larger benefit to those more in need, one could argue that taking away the tax credit ignores those who are savers and own some assets, even if it is only a safety net and a rusty Hyundai.