Easing the financial strain of a private education
They’re minimal, but there are a few tax breaks for which you may be eligible
The upside of sending your child to a private/independent school: you get to choose the education you think is best suited to your child, whether that means a smaller class size, religious education or all-boy or all-girl student body.
The downside: such schools can be pricey. Although the government offers a number of ways to help parents pay for post-secondary education, from RESPs to the tuition tax credit, it’s less forthcoming when it comes to private-school tuition.
“There’s really not a lot in the way of tax breaks for parents of privateschool kids and it’s really not subsidized at all through the tax system,” says Jamie Golombek, managing director, tax and estate planning for CIBC Wealth Strategies Group.
What relief the government does provide generally falls into one of the following three categories: Child-care deductions: If your child is too young to go to public school, you can claim at least a portion of the fees paid for privateschool tuition as child care. (There’s a limit of $8,000 per child for children under 7, and $5,000 for kids 7 to 15, unless your child has a disability.)
But the circumstances are limited. If a school provides a separate or additional program of child care, as well as a half-day or alternate-day kindergarten program, the portion of the fees related to the child care would qualify as a child-care expense, Golombek says.
Similarly, if the private school your child attends offers care during the lunch hour or before or after school, you can claim the portion of school fees specifically relating to child care. “Most private schools will break out those fees separately to make it easy for parents to claim them,” Golombek says.
On the other hand, “when a school offers a full-day kindergarten program, you can’t deduct any part of the fees as a child-care expense,” he says, because those payments are deemed to be for education, rather than for child care. Medical expenses: When kids have a mental, learning or physical disability, it can be tough to find a school to accommodate their special needs. “Parents sometimes turn to the private-school system,” Golombek says.
Fortunately, he says, the CRA provides some relief for the cost of schooling and extra tutoring through a 15-per-cent federal medical expense tax credit (METC), as well as a provincial credit (another 5 per cent in Ontario), as long as the expenses exceed a minimum threshold equal to the lesser of 3 per cent of your net income or $2,268 in 2017.
But you’ll need to make your case clearly in order to claim it. You have to meet two basic criterion, Golombek says.
First, your child must have a physical or mental disability, and he must have need for the equipment, facilities, or personnel specially provided by that school, institution, or place of care for the disabled.
Second, a qualified person, such as a medical practitioner, must certify in writing that your child requires the “specially provided equipment, facilities or support personnel” available at that school.
Unfortunately, “there are literally dozens of cases where people have tried to claim private-school fees for various learning disabilities or severe food allergies and the CRA turned them down because they’re not considered to be severe disabilities,” Golombek says. In other cases, the CRA determines the independent school in question is no better equipped to accommodate the child’s needs than the public-school system.
In short then, it’s not impossible to take advantage of the METC, but it’s difficult. “Prepared to be challenged,” Golombek says. “When you’re claiming medical expenses of $20,000 to $30,000 or more, it absolutely stands out. It’s a red flag on the tax return. The CRA will look at it.” Charitable contributions: Looking at a religious school for your child? There could be some relief in that. A private school offering reli- gious education may issue a donation receipt for a portion of the private-school tuition paid.
“The value of the donation credit varies, somewhat,” Golombek says, “but it can be worth up to 50 per cent in the form of federal and provincial donation tax credits.” Tax planning initiatives: For wealthy families with non-registered assets, there’s an opportunity there to pay for kids’ expenses, including private-school tuition, on a pre-tax basis, Golombek points out.
The strategy: You take money you have and loan it to your children or to a family trust at the minimum prescribed interest rate (currently 1per cent). Then you invest it in bank stocks and high-yield, blue-chip securities yielding 4 or 5 per cent. “Any return earned above that 1 per cent accumulates in the trust as income,” Golombek says.
The basic idea: even after the trust deducts the interest payment, it’s netting 3 or 4 per cent. That income can then be paid to the school for tuition on behalf of your kids.
The caveat: “For this to work, you have to have $500,000 to $1 million of capital available outside of your RRSP, RESP and TFSA,” Golombek says. “This is really only for the 1 per cent of really high net-worth families.”