Studying the tax incentives for going to college

The focus on tax policy over the years has changed. From the 1980s, the favoured sector was property, with tax breaks for purchases, investments, and sales in the form of things like mortgage interest relief, preferential rates of stamp duty, allowances against rental income and capital gains tax exemptions.

Some are now arguing that the more recent emphasis on corporation tax policy could lead to unsustainable revenues from that sector, as it turned out with the property sector.

What has not changed is a favourable tax regime for the education sector, which has operated in the background for many years. The tax breaks for education take many forms.

Generally speaking, the provision of education is an exempt service for Vat purposes. Education and course fees, no matter who the provider is, do not generally attract a Vat charge. Schools and universities don’t charge Vat; private sector collegesdon’t charge Vat for vocational training. That exemption reduces the out of pocket cost of training and education for consumers by about one fifth.

The cost of purchasing education by business is generally given a favourable taxtreatment as well. Any employer running up costs providing training for their employees should get a deduction from their taxable income for the cost of thecourse, provided the training is in some way relevant to the work the employee is doing.

There are separate rules for getting a tax credit for tuition fees. This relief is more complicated than perhaps it needs to be. Given recent reports suggesting only a small proportion of people are claiming the tax relief to which they could be entitled, it is worth perhaps setting out the way the system operates.

First of all, you have to make sure that the course you are paying for is eligible for thetax relief. The relief is only granted for eligible courses from eligible institutions.

The list has not been updated for many years which is a shameful omission. In general, a long established course from a long established third level institute should be eligible for tax relief.

Revenue publishes a list of the courses which are eligible on the website, and this should be checked.

Once you’ve identified that the courses you are paying for do qualify, you can make a claim for 20% of the fee up to a maximum amount of €7,000 per course. Be careful here. Not all payments qualify. For instance, exam fees don’t qualify, but the “student contribution” does.

For every year you make a claim, there is a sum that Revenue call a “disregard amount”. For full-time courses, the disregard amount is €3,000 per year. When claiming the tax back, you add up all the qualifying college fees being paid for that year, subtract the disregard amount (just once) and then expect to receive a taxrefund of 20% of the net fees paid.

If you’re a parent with one child in college, the tax relief won’t be much help, because in many cases the college fee being paid is about the same as the disregard amount.

But if you’re supporting two or more people going to college, the relief becomes useful because the disregard amount is subtracted only once from the total college fees you are paying in the year. Nor does it say anywhere that the person you are supporting through college must be a child. There is no tax relief available for accommodation and subsistence costs.

If you are in the business of providing accommodation to students, an annual exemption €14,000 applies when renting a room in your house. This exemption also extends to providing and charging for laundry services and food. Don’t exceed the€14,000, or the entire amount becomes taxable in the normal way.

Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland