By Michael Keerma
With tuition ranging from $5,000 to $65,000, cost is a key factor for many families considering private school education. Provincial governments in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec provide some funding to private schools, but the bulk of cost is paid by parents.
Still, some 45 per cent of private school students come from middle-income families. And enrollment has increased 35 per cent over the past decade as parents respond to the flexibility and diversity offered by some 1,700 independent schools in Canada.
Today, a growing pool of resources can help parents meet the challenge of financing their child’s private school education.
Your family is your primary and most important source of funds. Robyn Thompson, a senior financial planner with R.N. Croft Financial Group Inc. of Thornhill, Ontario, advises families to consider these key issues:
› Budget : Revisit your household budget. If you earn an average income, plan carefully. You may need to downsize or postpone discretionary expenses such as vacations, entertainment and home upgrades. Allocate a higher portion of your budget to your child’s education.
› Investments : Make full use of discretionary investment funds to maximize ongoing savings. Open Tax-Free Savings Accounts as income earned and withdrawn are free of tax and may be used for any purpose.
› Family support : Grandparents, aunts and uncles are often a source for education funding. Certain tax rules may apply, however. (See Tax Tactics on strategies for minimizing taxes.)
› Personal loans : Your financial institution may lend you money for private school tuition, depending on your financial circumstances and other factors. Thompson says families considering this step should seek independent financial advice first, as this may represent a considerable debt burden.
› Charities : Churches, community service organizations and other charitable foundations may be a source of funding for lower-income families. School Choice Trust, for example, is a privately funded organization that provides 50 per cent of tuition to a maximum payout of $4,000 to families in financial need.
Canada’s independent schools may target up to 20 per cent of their student population for financial assistance, says William Mitchell, Executive Director (Interim) of the Canadian Association of Independent Schools (CAIS). Typically, three types of financial assistance may be offered, depending on the school:
› Scholarships may be offered to students with a high level of academic proficiency and other achievements, such as community involvement or distinction in the arts or athletics.
› Bursaries, the most widely used form of financial assistance, are needs-based, non-repayable grants offered to qualifying families. The amount of the bursary depends on the school. Many schools also offer sibling bursaries or discounts for families with more than one child enrolled in the school.
› Installment payment, usually monthly, help spread payments over the year. Ask the school’s financial officer for more information or check the school’s website.
Although no direct tax relief is available for private school tuition, several indirect measures are available, including deductions, credits and tax-minimizing strategies. For instance, scholarships and bursaries offered by private schools are tax-exempt.
Samantha Prasad, a tax specialist and partner with the Toronto law firm Minden Gross LLP, says the general rule is that private school tuition for elementary and secondary school students is not tax deductible. However, she says, a portion of private school fees that relate to child care services for students under age 16 may be deductible as a child care expense. The deduction amount is based on that portion of the day that involves supervision and is not related to academic instruction, such as lunchtime supervision, she says.
“It may be possible to claim a charitable donation tax credit for all or a portion of the fees paid to a private school that exclusively teaches religion or where the private school provides both academic and religious education.” If the school is registered as a charity, the tax benefit of a charitable donation can be significant, depending on the province of residence. For example, the combined federal/provincial tax credit is 50 per cent in Alberta. Check with your prospective school to see whether fees are segregated and if tax receipts are issued for these purposes.
It may also be possible to claim the tuition fees as a medical expense tax credit, provided that a doctor certifies in writing that the facilities, equipment or personnel of the private school are required due to the student’s mental or physical needs.
Often, grandparents or relatives wishing to contribute to a child’s private school tuition will make an outright gift of cash. In Canada, there is no “gift tax,” and so the amount will not have to be included in the recipient’s income. However, under so-called “attribution rules,” any income earned from that gift will be attributed back to the donor for tax purposes.
However, there are exceptions to this rule. Alan Rowell, a tax specialist at The Accounting Place in Stoney Creek, Ontario, says that capital gains realized on property transferred to children under 18 are not attributable back to the source. So large gifts of capital property to a minor may, for example, be invested in the student’s name in a “corporate-class” type of investment (usually mutual funds), where any disposition of units is treated as a capital gain, and is thus taxed at the student’s lower rate. Certain kinds of trust arrangements may also mitigate the effects of attribution rules, but these require expert legal and financial help.
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