Is it the growing competition in the workforce, the sluggish economy, or just plain inertia? Whatever the reason, kids are spending more years in university, many of them pursuing expensive graduate studies overseas .

For many parents this means outlays for education are higher and longer than originally anticipated. And with these high costs, it’s important to take advantage of any savings that can be gleaned through the tax system, both now and in the future.

Let’s start with RESPs. Various tax changes in recent years have made these plans more flexible, particularly in relation to prolonged college or university education. In addition to the elimination of annual contribution limits and enhanced government grants (the lifetime limit remains at $50,000 per child), contributions can now be made for 31 years and plans can now run for as long as 35 years. This can be helpful when kids decide to extend their years at university or return to post grad education after a brief hiatus. Moreover, even part-time students can now access RESPs.

Another funding source your clients might consider is the tax-free savings account (TFSA). Up to $5,000 per year can be provided to children aged 18 and older for contribution to their TFSAs. Parents might fund contributions in their kids’ undergraduate years, and then capital and savings could be withdrawn, completely tax-free, to pay for post-graduate studies.

As far as annual tax savings for payments for those steep schooling costs go, there are tuition, education and textbook credits available (the education and textbook amounts are fixed). Parents, however, can only claim up to $5,000 (provincial amounts vary) of the amount that can’t be used by the student in the year. Excess unused credits can be carried forward and used in a future year, but only by the student.

But keep in mind, tuition paid to a university outside Canada is eligible for credit only if the student is in full-time attendance at the university. Within Canada, there’s no full-time requirement, although special rules apply to certain cross-border commuter students. The education and textbook credits simply require a student to be enrolled in a qualifying course for Canadian and foreign schools.

For students with modest earnings during university years, the carry-forward credit amounts can become very significant, especially if they’ve gone to schools outside Canada. To establish and track these unused credits, it’s important to file Canadian tax returns that report tuition, education and textbook outlays. The CRA tracks and reports unused amounts in the Notices of Assessment it sends. Filing a return also establishes RRSP contribution room for students who do have earnings.

If your client has implemented an estate freeze or some other tax strategy that provides kids with income, the credits will likely be used more quickly. In the case of a family corporation, your client might even consider having it loan funds to the shareholder/student to cover costs. There will be an income inclusion for the amount of the loan, but the tuition credit, education credit and personal credit will likely be sufficient to ensure no (or minimal) income tax is payable. When the student repays the loan, presumably when he or she is earning taxable income at a high marginal rate, a deduction will be available.

And finally, your client might consider advancing funds for the purchase of a house or condo that the student (18 or older) lives in during university. The gain on the eventual sale can be sheltered by the kid’s principal residence exemption. If rooms are rented to other students to help with carrying costs, a reasonable portion of expenses can be deducted in computing net rental income. But don’t claim depreciation, since it will result in the loss of the principal residence exemption. This strategy may not, however, be effective for studies outside Canada, since tax laws in foreign jurisdictions might not be so accommodating.