VAC Education and Training Benefit (ETB) [Merged]

[ballz]

Figure out how much school will actually cost, and ask for only that amount-

That's literally turning down free money. In the scenario above, not taking the additional $16,000 is basically be turning down $12,000 of actual after-tax money.

If your ETB amount equals roughly your education costs, no tax hit.

Not assured. The tuition tax credit is only 15% of tuition paid. The education and textbook tax credits were eliminated by the Liberals. So even if you only take the $4000 for tuition, if your marginal rate is higher than 15% (and it almost certainly is) then there's going to be a tax consequence. If you plan it poorly and made $80,000-100,000 that year, released, and then received the money for tuition prior to 31 December, your marginal tax rate on that tuition money is going to be quite a bit higher than 15% (like let's say you are in NB... it's probably in the neighbourhood of 37%....... so on that $4000, the net tax effect is 4000*(.37-.15) = $880.

 

[brihard]

That's literally turning down free money. In the scenario above, not taking the additional $16,000 is basically be turning down $12,000 of actual after-tax money.

Not assured. The tuition tax credit is only 15% of tuition paid. The education and textbook tax credits were eliminated by the Liberals. So even if you only take the $4000 for tuition, if your marginal rate is higher than 15% (and it almost certainly is) then there's going to be a tax consequence. If you plan it poorly and made $80,000-100,000 that year, released, and then received the money for tuition prior to 31 December, your marginal tax rate on that tuition money is going to be quite a bit higher than 15% (like let's say you are in NB... it's probably in the neighbourhood of 37%....... so on that $4000, the net tax effect is 4000*(.37-.15) = $880.

Regarding 'turning down free money', depends on if you plan to use more of it later- we have ten years to take advantage of it. Doing my masters won't use my entire $40k, I'll probably do something else later down the road, and having more education funding then will be useful.

You're correct on the education amounts being deductible at the 15% marginal tax rate- my brain fart on that one.

 

[ballz]

Regarding 'turning down free money', depends on if you plan to use more of it later- we have ten years to take advantage of it. Doing my masters won't use my entire $40k, I'll probably do something else later down the road, and having more education funding then will be useful.

If you're banking on using for a future program then by all means, those are all personal choices, I thought you meant to avoid a tax bill... some people really do think they can take a net loss on these type of things due to tax.

The bigger takeaway from the post is just to get people thinking of tax planning for this benefit. Especially if you are someone taking a transfer-value, between the transfer value and this benefit a little foresight can leave you with a lot more money. Sad part about tax planning is most people don't see someone about it until tax season, and by then it's already too late.