Training cost(s) and taxes

[SoaringHigh]

Good morning fellow aviators,

Quick question re: taxes and flight training costs. Can someone explain to me what the (TL118 or whatever form it's called) actually does to our income tax assessment?

For example, does it knock down your taxable income like an RRSP investment, or is it more like a tax exemption for the taxes paid/incurred on our training costs?

Wondering what kind of return I'm looking at for 2018's income tax... I believe there will be roughly 60k on my TL118 form.

Thanks all!

[photofly]

You put the amount on your TL11B in your T1 Schedule 11 ... which goes to your Schedule 1 Line 323 .... which becomes part of your "federal non-refundable tax credits".

So, it's a tax credit. It reduces the tax you'll have to pay, but you can't reclaim it as a refund. If you can't use the whole amount of credit, you can carry part of it forward to the next year, or transfer it to your spouse or partner, or your (or your partner/spouse's) parents or grandparents.

It's more or less the same for the provincial tax credit, depending on which province you live in.

Does that help?

[SoaringHigh]

Thanks for the response Photofly. It kind of makes sense to me.

Is it a tax credit only on the taxes i paid for training? If so the monetary amount I see as a return come tax season (relatively) won't be that much... Will it?

I'm not a finance guy by any stretch here, lol

[photofly]

The general way it works with tax credits is that you put all your earnings in a pile, and work out how much tax you owe. Then you subtract your tax credits from what you owe, and pay the difference to the government.

Some credits are refundable - if the amount of tax you owe is negative, the government owes you money, and gives you a refund.

Some credits (like the tuition credit) are not refundable. They can reduce the amount you have to pay, but you can't get the government to give you any money back. If that's the case, you're better off claiming the credits in a later year, when you're earning more money.

You should probably see an accountant to make sure you make the most of whatever you're due.

Is it a tax credit only on the taxes i paid for training?

There are lots of different tax credits; but you asked about the T11B. That's for tuition costs. In this case the credit is for the income tax you would otherwise have paid on the income that you used to pay for the training. It lets you pay income tax at a lower or zero rate on that portion of your income that you spend on bettering yourself.

[digits_]

Thanks for the response Photofly. It kind of makes sense to me.

Is it a tax credit only on the taxes i paid for training? If so the monetary amount I see as a return come tax season (relatively) won't be that much... Will it?

I'm not a finance guy by any stretch here, lol

You can always download one of those free tax programs and input your information and play around a bit with the numbers, to have an idea how much you'll need to pay or get back. Those programs are pretty extensive and fairly user friendly.

[nbinont]

Typically the effect is a reduction of your taxes by your (tuition and textbook amounts) * (the lowest federal tax bracket rate + the lowest provincial tax bracket rate), limited by your income. For Ontario this roughly works out to a reduction of your taxes by: your costs * 20%.
Also note that a certain amount of your flight training may be sales tax exempt as well (either at the source, or via an application for a refund from the government if your school charged you sales taxes).

[SoaringHigh]

Ahh ok ok I'm starting to get a better picture of what the tuition tax credit does to our tax assessment.

Thanks guys!!

[Peregrine]

Also note that a certain amount of your flight training may be sales tax exempt as well (either at the source, or via an application for a refund from the government if your school charged you sales taxes).

Can you elaborate on how this part work? Thanks.

[photofly]

Be very careful.

Some schools qualify to "exempt" the charges they make for vocational training from sales tax such as HST. However this has to be accounted for in the school's monthly or quarterly HST return, and it means they can claim back as an input tax credit less of the HST they pay out on purchases. You absolutely CANNOT file a reclaim for HST on your own because YOU think it should have been an exempt supply.

More technically, the school can only claim an input tax credit for HST on its purchases related to the non-exempt sales it makes. If the school makes 50% exempt training flights and 50 non-exempt training flights (on which it charges HST) it can only reclaim an input tax credit of half the HST on its purchases (such as fuel, maintenance and running costs). As the CRA guidance points out "Exempt supplies – are supplies of property and services that are not subject to the GST/HST. GST/HST registrants generally cannot claim input tax credits to recover the GST/HST paid or payable on property and services acquired to make exempt supplies." (My emphasis) - it follows then that the school has to declare a supply to be exempt in order to account for it correctly, and it is not something you can do on your own and after the fact.

There IS a reclaim form for HST paid in error, but it's NOT appropriate to use it for sales tax that you paid on training to an HST registered establishment that you now want to get back. If you do make such a claim, you will receive a refund from the CRA but only because they don't audit all claims. If you are audited at a later date you will have to repay what you falsely reclaimed, with interest and maybe penalties.