Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2023: part 10

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Tuition Tax Credit: A Profile of Claimants and Beneficiaries^{Footnote 1}

1. Introduction

The federal government plays a critical role in facilitating access to education through a number of policies and programs, which include tax credits. One such measure is the Tuition Tax Credit (TTC), a non-refundable credit that provides tax relief to students and supporting individuals for eligible tuition expenses. In doing so, the TTC lowers the after-tax cost of investing in education.

This study has two main objectives. First, it presents a portrait of TTC claimants in 2019, analyzing the characteristics of eligible taxfilers and claimants, as well as the patterns in their eligible tuition expenses, TTC claims, and corresponding benefits. Second, it presents a longitudinal analysis of TTC claimants between 2014 and 2019, using a sample of taxfilers who reported eligible tuition fees prior to 2014, but not in that year. This longitudinal analysis provides a better view of how claimants use the TTC over multiple years after they leave education.  

The remainder of the study is organized as follows. Section 2 provides background information and a description of the measure. Section 3 presents statistics on amounts reported in Schedule 11, the tax form through which students detail their eligible expenses. It also contains an analysis of the transfer and carry-forward behaviour of Schedule 11 filers. Section 4 presents statistics on TTC claimants and beneficiaries in 2019. Section 5 presents the longitudinal analysis that examines the long-term usage of the TTC among a cohort of taxfilers. Finally, the last section concludes.

2. Background Information

Introduced in 1960, the objective of the TTC is to recognize the costs of enrolling in qualifying educational programs and occupational training courses or examinations at designated educational institutions. These institutions include Canadian universities, colleges, and educational institutions certified by the Minister of Employment and Social Development Canada, as well as educational institutions outside of Canada that meet certain conditions. The TTC promotes horizontal equity by recognizing that an individual who incurs tuition expenses would have a reduced ability to pay tax relative to someone with similar income who does not incur such expenses.

As the TTC is a non-refundable tax credit, to benefit from it in a given year, taxfilers must have positive federal taxes payable.^{Footnote 2} Those who enroll in an educational program^{Footnote 3} must first claim their tuition amounts^{Footnote 4} (i.e., TTC amounts) on their own T1 return to reduce federal taxes payable. The value of the credit is equal to the total tuition amount claimed (together with education and textbook amounts claimed, if applicable) multiplied by the lowest personal income tax rate.^{Footnote 5} If individuals cannot use all of their TTC amounts, the unused amounts may be transferred to a supporting individual or carried forward to a subsequent taxation year. Taxfilers have two options:

1. Transfer up to $5,000 (less the amount already claimed by the student) to a spouse or common-law partner, a parent or grandparent.^{Footnote 6} Only tuition expenses paid in the current taxation year may be transferred, and only to one supporting individual.
2. Carry forward unused tuition amounts to claim in a subsequent taxation year. Any amount that is not claimed or transferred will be carried forward. However, carry-forward amounts may not be transferred to a supporting individual in subsequent years. The carry-forward mechanism is designed to address situations in which students do not have sufficient tax owing to benefit from the TTC in the given taxation year.

The TTC can be claimed by filing a tax return with the Canada Revenue Agency. Students must first complete Schedule 11 to report any unused tuition, education, and textbook amounts carried forward from prior taxation years (i.e., "starting balance"), as well as any eligible tuition fees incurred in the current taxation year.^{Footnote 7} Amounts carried forward can be claimed or carried forward again, whereas eligible fees incurred in the current year can be claimed, carried forward, or transferred to another individual. In all cases, taxfilers indicate the amounts claimed, carried forward, and transferred on Schedule 11. Individuals who complete Schedule 11 and are able to claim the credit can do so by entering an amount on Line 32300 of the T1 Income Tax and Benefit Return.^{Footnote 8} With respect to supporting individuals, a parent or grandparent can claim the credit by completing Line 32400, whereas a spouse or common-law partner can claim the TTC by completing Line 32600.^{Footnote 9} The latter group must also report tuition amounts that were transferred to them on Schedule 2.^{Footnote 10} Chart 1 summarizes the flow of information in Schedule 11 and highlights the points at which students may claim, transfer, or carry forward TTC amounts.

There have been several changes to the TTC since its inception. Budget 1960 announced the measure as a deduction, and it came into effect in 1961. As part of the 1987 Tax Reform, a non-refundable tax credit replaced the original deduction and was made transferable to spouses, parents, or grandparents. Budget 1997 introduced a provision allowing unused tuition amounts to be carried forward for use in subsequent years. Further, changes to minimum duration requirements for courses, along with expansions to the types of courses and programs eligible for the TTC, were announced in Budget 2011 and Budget 2017.^{Footnote 11},^{Footnote 12}

3. Analysis of Schedule 11 Filers in 2019

As explained above, to claim the TTC, taxfilers must complete Schedule 11 by reporting a starting balance carried forward from prior years and/or reporting eligible tuition fees incurred in the current year. This section provides statistical information on taxfilers who fill out Schedule 11 and the amounts they report. It also describes whether these filers claim the TTC themselves, transfer amounts to supporting individuals, or carry forward these amounts for use in later years. It uses personal income tax return data from the T1 income tax returns. The analysis is done at the individual level, as the credit is claimed at this level.^{Footnote 13}

In the remainder of the text, the study refers to the group of individuals who completed Schedule 11 as "Schedule 11 filers". The population of individuals who could potentially claim the TTC themselves (i.e., they could report amounts on Line 32300) are referred to as "students." Distinctions between current students and past students (those who did not report tuition, but have a starting balance on Schedule 11) are made where necessary.^{Footnote 14} Individuals who may claim the credit after receiving transfers from a Schedule 11 filer (i.e., via Lines 32400 and/or 32600) are referred to as "supporting individuals". The claimant population is defined as all taxfilers who reported an amount to claim the TTC on at least one of Lines 32300, 32400, or 32600, unless noted otherwise.^{Footnote 15} The beneficiary population includes all filers who claimed the TTC and benefitted from a reduction in federal income tax payable due to the measure.

3.1 Statistical profile of Schedule 11 filers

This section provides a profile of Schedule 11 filers in 2019. Table 1 shows the total number of Schedule 11 filers and the breakdown by various categories.

In 2019, 3,852,600 individuals filled out Schedule 11 (which corresponds to 13.3% of total filers in that year). Of that number, 37.8% reported eligible tuition fees only, 33.1% reported only a starting balance, and 29.1% reported both. Women were most likely to fill a Schedule 11. Indeed, that group made up 58.1% of all Schedule 11 filers, a share similar to the share of female post-secondary students in Canada.^{Footnote 16} Most Schedule 11 filers were current students, with 52.9% of filers being full-time students and 18.6% being part-time students.^{Footnote 17} Almost all Schedule 11 filers reported some labour income (85.3%).^{Footnote 18} This may include income earned concurrently during the school year, during gap periods, such as the summer months, or after leaving post-secondary study. More than a quarter of Schedule 11 filers reported receiving scholarship, research grant, or apprenticeship grant income (28.2%).^{Footnote 19}

Schedule 11 filers use the amounts they report in different ways. About half of them claim the TTC for themselves in the year they file. Almost two thirds of them carry some amounts forward (62.9%). Finally, about a fifth of Schedule 11 filers transfer some amounts to a supporting individual (18.5%).

Table 2 shows summary statistics for the amounts reported on Schedule 11. In total, Schedule 11 filers reported $47.2 billion in eligible tuition fees in 2019. That amount corresponds to an average of $12,255 per filer or a median of $5,435. Since the average is approximately double the median, this suggests that a relatively small number of filers report a large amount compared to the typical filer. The results also suggest that most of the amounts claimed on Schedule 11 were unused balances, and that the distribution is skewed towards individuals with large unused balances.

Total TTC claims equalled $11.5 billion. The total consisted of $8.4 billion worth of starting balance amounts (73.2%) and $3.1 billion worth of eligible tuition fees incurred in 2019 (26.9%). The remainder of the amounts reported on Schedule 11 that were not claimed in the year are either transferred to a supporting individual or carried forward. As Table 2 shows, most of the amounts were carried forward, with an average per filer of $13,765 in 2019. Again, this average is skewed by some individuals carrying forward large amounts, since the median amount carried forward is much lower at $6,520.

Table 3 provides more details on the characteristics of Schedule 11 filers. Looking at the gender distribution, 58.2% of Schedule 11 filers were women, a proportion that is larger than this group's representation in the overall population of taxfilers (51.5%) but, as noted earlier, similar to the share of women in post-secondary education. However, male Schedule 11 filers reported higher tuition fees on average. Male Schedule 11 filers were also more likely to claim the TTC (rather than transfer or carry forward their full balance).

Looking at age groups, the population of Schedule 11 filers is unsurprisingly younger than the overall taxfiler population. Indeed, most of them were under the age of 35 (77.2%). The proportion of Schedule 11 filers who reported eligible tuition expenses decreased with age, with the highest rates among those who were under 25. Older filers reported tuition at lower rates, probably because they were completing Schedule 11 to report and make use of amounts they carried forward in the past.

Sole filers without children are greatly overrepresented among Schedule 11 filers, making up 69.8% of that population, compared to 41.8% of all taxfilers. In contrast, only 11.4% of Schedule 11 filers are in a couple without children, compared to 35.3% of all taxfilers. These proportions reflect the fact that many Schedule 11 filers are younger, and possibly still post-secondary students.

Similarly, Schedule 11 filers are more likely to be among lower-income groups. For example, approximately 69.5% of them reported total income under $30,000. In fact, nearly one-third of Schedule 11 filers had income under $10,000—the greatest representation among all income groups. Schedule 11 filers in the two lowest income brackets were also most likely to report eligible tuition expenses, with 73.8% and 71.5% of individuals in both groups reporting tuition, respectively.^{Footnote 20} Unsurprisingly, however, the claim rate increased with income as individuals start earning enough to pay income tax and claim the TTC.

3.2 Analysis of transfer and carry-forward behaviour

Table 3 above also presents information on the transfer and carry-forward rates by gender, age, family type, and income. Looking at gender first, the table shows that a slightly higher proportion of women transferred balances to a supporting individual, while both groups carried forward unused TTC amounts in similar proportions.

The transfer and carry-forward rates follow opposing trends with age. As Schedule 11 filers get older and are more independent, they are less likely to transfer to a supporting individual, and more likely to carry forward balances for later years. For example, Schedule 11 filers under the age of 18 had a high transfer rate (74.2%) and a low carry-forward rate (32.7%). In contrast, those between the ages of 35 and 44 years old had rates of 33% and 95.9%, respectively.

Looking at family types, transfer rates were the lowest for sole filers with children. Schedule 11 filers in other family types all had similar transfer rates at around 40% and 50%. Carry-forward rates did not differ much between family types, with all of them having rates around 90%.

Transfer rates were the highest among lower-income filers. The high transfer rates among lower-income filers is explained by the fact that they were less likely to claim the TTC themselves, since they were less likely to be taxable and more likely to have required assistance in paying for their education. In contrast, the carry-forward rate increased with income level, although the differences between the groups were not as pronounced. The next two tables provide greater detail on how Schedule 11 filers transfer amounts to supporting individuals. While nearly one fifth of all Schedule 11 filers transfer some amount, the figure is larger among some sub-groups. For example, Table 4 shows that among filers with an unused balance who also reported eligible tuition fees (i.e., the group who can transfer), 41.9% transferred TTC amounts to a supporting individual. Among individuals who transferred some amount, the majority (66.1%) also had TTC amounts remaining that they carried forward for use in subsequent years.

Table 5 presents further analysis of transfer and carry-forward patterns, distinguishing between Schedule 11 filers who claim the TTC and those who do not. As expected, non-claimants were much more likely to transfer to a supporting individual than claimants (29.0% vs. 7.9%).^{Footnote 21} Furthermore, non-claimants are more likely to have no amount available to carry forward after transferring, compared to claimants (11.6% versus 0.9%). However, as seen in Table 4 above, the majority of individuals do not transfer any amounts.

4. Analysis of TTC Claims and Benefits

The previous section provided information on filers who reported tuition amounts using Schedule 11. The study now turns to how these amounts were claimed under the TTC. This section starts by providing statistics on the tax credit and the amount of benefits it translates into, and then provides a statistical profile of the claimants and beneficiaries.

Table 6 presents information on TTC claims and benefits. In 2019, the majority of claimants were current or past students (75.9%), with 82.9% of total claims. The remaining claimants were supporting individuals, who accounted for 17.1% of total claims. The average amount claimed by supporting individuals was also lower than students ($3,905 vs $6,015). These TTC claims resulted in a total of $2.1 billion in benefits, distributed similarly to claims.^{Footnote 22}  Current or past students saved $900 on average in federal taxes payable, whereas supporting individuals derived an average of $585 of benefits.

It can be useful to disaggregate claimants who are students in smaller categories. Indeed, some are current students, while others are working and claiming the TTC from unused balances carried forward (i.e., past students). Table 7 shows that 44.6% of all student claimants reported eligible tuition fees only and 26.1% reported both a starting balance and eligible tuition fees. These two groups make up the group of claimants who are currently studying. Meanwhile, the remaining 29.3% reported only a starting balance, indicating that they are no longer in education (i.e., they are past students).

The group of past students accounted for the most TTC amounts claimed (46.4%), claiming an average of $9,535 per claimant. In contrast, current students claim much lower average amounts. Indeed, filers reporting both a starting balance and eligible tuition fees claimed an average of $7,610 each, and those with eligible tuition fees only claimed $2,785, on average. This result is likely due to the fact that current students (i.e., individuals who are enrolled in classes and incur tuition expenses) have lower incomes and less federal tax payable, and would therefore be less likely to claim the TTC. Past students likely have higher incomes and thus face a greater tax liability, which allows them to make use of their accumulated TTC balances.

4.1 Characteristics of TTC claimants

The remainder of this section presents a profile of the characteristics of TTC claimants and beneficiaries, focusing on the student population (both past and current), while excluding supporting individuals.^{Footnote 23}

The first rows of Table 8 show the breakdown of claimants by gender. Women made up the majority of claimants but claimed lower amounts on average. Indeed, women claimed an average of $5,710 per claimant, while men claimed $6,425 per claimant.

The next rows show the breakdown by age category. Most claimants are between the ages of 18 and 34 (77.3%), which is expected since they are either students or recently graduated. Similarly, this age group is responsible for almost all amounts claimed (85.1%). They also claim the highest average amount. Amounts claimed gradually decrease among older claimants. Among these older filers, many probably only have smaller amounts carried over left to claim, or have returned to education for shorter or part-time training, which is generally less expensive.

Table 8 also shows the breakdown by family type. Sole filers without children made up the vast majority of claimants (69.0%). Filers in a couple without children represented another 13.7% of claimants. In total, filers without children represented almost all claimants. The group that was least likely to claim the TTC was sole filers with children, who made up only 3.1% of claimants. Filers who were in a couple with children made up the remaining 14.2% of claimants.

Finally, Table 8 provides a breakdown of claimants by income group. Virtually all claimants had an income of at least $10,000. The largest group among claimants consisted of those with incomes above $50,000, representing 25.2% of all claimants. The distribution of claims is slightly more skewed towards higher-income earners, since claimants with incomes above $50,000 account for 31.6% of all TTC claims. Similarly, average claims are generally increasing with income. These patterns are likely explained by the fact that claimants with higher incomes are more likely to be paying income tax, and have income tax otherwise payable against which they can claim the credit. Benefits followed a pattern similar to claims. 

5. Longitudinal Analysis of TTC Claimants

The final section of the paper presents a longitudinal analysis of the TTC^{Footnote 24} that follows a cohort of students across several years. Due to the carry-forward provision in the design of the measure, a longitudinal analysis allows for a more complete understanding of TTC claiming patterns and the ways in which students benefit from the credit over an extended period, especially after they leave post-secondary education (i.e., they cease to report eligible tuition expenses). The section includes a description of the criteria used to construct the longitudinal dataset, characteristics of taxfilers in the sample, and a discussion of the evolution of TTC claims among the sample.

5.1 Selection criteria used to determine the longitudinal sample

Using data from 2013 to 2019, the analysis tracks individuals over a period of six years, from 2014 to 2019. The initial longitudinal sample was constructed based on the following criteria: first, all taxfilers who completed a Schedule 11 in 2013 and reported eligible tuition fees were selected. Next, among these filers, those who filled out Schedule 11 in 2014 but did not report any eligible tuition fees were chosen. In other words, the analysis focused on filers who were in education in 2013, but not in 2014.

This resulted in a dataset of 736,900 individuals, on which we introduce a number of additional restrictions to create a sample that captures the characteristics and TTC claiming patterns of graduates (i.e., individuals who finished their education in 2013 and did not pursue further schooling for the following six years).

First, we restrict the sample to individuals observed over the whole period. Second, taxfilers who had a starting balance of zero in 2014 were removed from the sample. Third, individuals who reported additional eligible tuition fees in later years were eliminated, in order to limit the sample to filers who did not return to education during the period. ^{Footnote 25} Finally, the fourth restriction addresses data issues caused by discrepancies in the reporting of carry-forward balances. There were instances where, due to misreporting, carry-forward balances were inconsistent from year to year. Therefore, all taxfilers who had cumulative claims from 2014 to 2019 that were larger than their starting balance in 2014 were removed.^{Footnote 26} After imposing these four conditions, the final longitudinal sample consists of 174,800 taxfilers.

5.2 Summary statistics on the longitudinal sample

Table 9 presents summary statistics on the demographic characteristics in 2014 of filers in the longitudinal sample (i.e., with all restrictions). In 2014, the majority of these filers (79.2%) were between 18 and 34 years of age. Male filers were more likely to be younger, with 82.7% under the age of 35, compared to 76.9% of women. Women made up 67.7% of filers aged 35 and older.

Table 10 provides additional descriptive statistics in 2014 and 2019. The average total income of in-sample individuals grew by 62.8% from $30,450 in 2014 to $49,580 in 2019, with average earnings following a similar trajectory (61.4% increase).^{Footnote 27} In both years, women had lower average earnings and average total income compared to men. Both quantities also grew at a faster rate for men relative to women (earnings: 82.9% versus 45.6%, total income: 81.5% versus 49.5%).

In 2014, filers had an average starting balance of $13,920, and claimed an average of $6,210 in TTC amounts. At the end of 2019, these filers had a remaining carry-forward balance of $1,790 per person. Over the duration of the entire period, filers in the longitudinal sample claimed an average of $11,830 per person in TTC amounts. On average, men had a slightly greater starting balance at the beginning of the period, and claimed larger TTC amounts.

Chart 2 provides a different look at the data on amounts claimed shown in Table 11. It shows the average cumulative claim from 2014 to 2019, as well as the balance utilization rate, which is defined as the cumulative TTC claim since 2014 as a proportion of the initial starting balance in 2014. On average, in the first year of the period, individuals in the longitudinal sample claimed approximately half of their starting balance (49.8%). By 2016, they had claimed, on average, 74.3% of their balance, and by 2019 the balance utilization rate was 83.2%. These results show that on average, filers claimed a significant proportion of their starting balance in the year after they left post-secondary education and lesser amounts in the following years. Moreover, balance utilization rates were slightly higher among men relative to women. By the end of 2019, men had claimed 86.2% of their 2014 starting balance compared to 81.3% for women.^{Footnote 28}

Finally, Table 11 shows the distribution of taxfilers in the longitudinal sample according to the year in which they fully claimed their starting balance from 2014. From the 174,800 individuals in the sample, 33.2% claimed their balance completely in the first year of the period. Another 37.7% of filers claimed their balance completely between 2015 and 2019, while 29.1% still had remaining TTC amounts left to carry forward in 2019. A larger share of women, relative to men, still had a portion of their 2014 balances remaining in 2019 (31.2% versus 25.6%).  

6. Conclusion

A number of federal measures deliver support for students through the tax system. These include the Student Loan Interest Credit; the deduction for tuition assistance for adult basic education; and the exemption of scholarship, fellowship and bursary income. The Government of Canada provides further assistance for students through direct spending programs, which include the Canada Student Loans, Canada Student Grants, Canada Apprentice Loans, Canada Graduate Scholarships, and Canada Education Savings Grant programs. The federal government also provides funding to provinces and territories for post-secondary education through the Canada Social Transfer.

This study presents a comprehensive analysis of another measure: the Tuition Tax Credit, a non-refundable credit that provides tax relief to students and supporting individuals for eligible tuition expenses. The TTC promotes horizontal equity, while also lowering the after-tax cost of investing in education.

The study shows that in 2019, about three quarters of TTC claimants were students (past and current), who claimed $11.6 billion, whereas supporting individuals such as parents and spouses made up the remaining quarter of claimants and accounted for $2.4 billion of claims. On average, students saved $900 per filer in federal taxes payable, compared to an average of $585 per filer for supporting individuals.

To claim the TTC, individuals must first report eligible tuition fees and carry-forward amounts on Schedule 11. Among the filers who completed Schedule 11 in 2019, two-thirds reported eligible tuition fees. Because a large proportion of students did not have sufficient federal tax payable to claim their full TTC balances, the majority of filers who completed Schedule 11 carried forward unused TTC amounts to subsequent years. The study also shows that students made use of the transfer provision; around two-fifths of eligible students transferred TTC amounts to a supporting individual. Students (past and current) who claimed the TTC in 2019 tended to be women, under the age of 35, and sole filers.

The findings from the longitudinal analysis indicate that over a period of six years, from 2014 to 2019, a significant portion of filers in the sample (about 70%) fully claimed their TTC balance from 2014. On average, filers in the sample claimed roughly half of their starting balances in 2014, their first year out of education. By 2019, cumulative claims as a proportion of starting balances rose to an average of more than 80%.

References

• Canada Revenue Agency (2021). Guide P105: Students and Income Tax 2020.
• Government of Canada (2011). Budget 2011, A Low-Tax Plan for Jobs and Growth (pp. 270-271).
• Government of Canada (2017). Budget 2017, Building a Strong Middle Class (p. 206).

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