In February, Don Drummond’s Commission on the Reform of Ontario’s Public Services released a variety of recommendations on ways to improve student financial assistance to better support the accessibility of post-secondary education in Ontario. Of these recommendations, OUSA was particularly happy to see that Recommendation 7-21 called for a renewed exploration of “phasing out provincial tuition and education tax credits to invest in up-front grants.” This idea was originally proposed in the 2007 Ontario Liberal Party platform, but has yet to be implemented.
Why are students calling for such a dramatic change to tax credits we are entitled to?
How Tax Credits Work
The tuition and education tax credits are currently Ontario’s largest investment in non-repayable student financial assistance, valued at over $300 million dollars annually. They are an income tax credit, meaning that students must first earn enough to pay enough income tax during a fiscal year to receive it back in tax credits. The provincial tuition and education tax credits are calculated by multiplying 5.05% by the total amount of tuition paid during a fiscal year, as well as $478 for each month in study. The resulting credit is then deducted from the amount of owed tax to the provincial government when taxes are filed in the spring.
If the amount of taxes owed by a student is greater than their amount of tax credits, the benefits accrue in the same year. If the student has more tax credits than the amount of tax owed, they can transfer their credits to a parent, grandparent, spouse or common-law partner. A recent survey conducted of Ontario students found that the majority of students chose this option, due largely to the fact that many students did not make enough income during the academic year to pay the appropriate amount of income tax.
Issues with Tax Credits
Though tuition and education tax credits allow students to receive considerable refunds on their previous educational expenses, student organizations have generally agreed over time that there are far better means through which to deliver non-repayable assistance.
First, tuition and education tax credits are largely a regressive student financial assistance program, disproportionately benefiting students from high-income backgrounds. According to a Canada Millennium Scholarship Foundation report in 2007, the average amount claimed by low-income families was $520, while high-income families claimed an average tax credit of $2,000. This makes sense, as higher income families are far more likely to make enough income tax to qualify for the credits. Across Canada, sixty per cent of all tuition and education tax credits go to families with incomes above the national median.
Second, tax credits do little to help students address the up-front costs of post-secondary education. With the majority of universities in Ontario charging full tuition fees on or before the start of the academic year in September, students require funds at this time. It makes little sense, particularly for low-income students who may lack the financial resources to meet up-front costs in the first place, to maintain a system of non-repayable assistance that comes in the form of a refund in spring. It particularly does not make sense given that tax credits are one of Ontario’s largest expenditures on student financial assistance.
Lastly, very few students are able to utilize their credits to during the period of time they are in-study. Only eight per cent of full-time university students earn enough income during a fiscal year to claim $500 worth of tax credits, while the vast majority paid no income tax at all. For students from low-income backgrounds whose families do not make enough to claim the credits, the student is left with no option but to carry them forward to future years.
A Way Forward
Students are delighted that the Drummond Commission has highlighted this important issue again. It should be noted that eliminating these credits could not reasonably be done overnight. Many students carry forward their tax credits, so even if new credits stopped being given out, there would remain carried-forward credits to be paid out for several years thereafter. However, this should not be an excuse for inaction. The government should phase out out new post-secondary education tax credits and re-invest the savings in reducing students’ up-front costs. In the first year, over $200 million would likely be available, and the balance would become available as remaining credits are paid out. This would result in no new costs to government and spend financial assistance dollars where they are most needed. We are looking forward to a renewed discussion on the reform of Ontario’s outdated tuition and education tax credit system.
President, Trent in Oshawa Student Association
With files from Chris Martin, OUSA Director of Research