Back when I was a young biology undergraduate, taxes were the last thing on my mind. My decision not to go on to grad school had little to do with tax implications. Rather, it stemmed from two personal problems: indecision about what to specialize in for a master’s degree without having related work experience, and an almost incapacitating fatigue of poverty. In the mid-1990s, academic funding and jobs for the inexperienced were equally hard to come by. So, with the first round of credentials in hand, I struck out on the search for a experience in relevant scientific laboratory or field work.
After almost two years, I came up dry on that front. But instead, I logged experience in clerical work and then technical writing during the high-tech boom. And by then, any decision about grad school would have been made for me – I’d been off the academic track for two years, and my undergrad degree was just not strong enough to get back on the same program.
Fast forward five years. With experience, confidence, and money accrued, and the Canadian economy ticking up in parallel, I again embarked on the search for a graduate studies program. Another hurdle presented itself: with a seven-year-old BSc and little academic experience in the humanities, I would have to do a qualifying year to even be considered as a master’s applicant.
“This,” I thought, “is for dummies!” I had had enough of opportunity cost (a concept that all undergrads should learn at orientation) and needed funding or earnings.
So, I threw myself into an alternative BA program in the liberal arts that allowed me to simultaneously work fulltime. Three gainfully employed years later, I had learned what I wanted in a fantastic program at the Thomas More Institute for Adult Education (affiliated with Bishop’s University). But I also knew that there is a track you are expected to follow for full-fledged academic success, and I wasn’t on it.
In what sense am I better off than if I had gone the normal bachelor-master-PhD route? First, the tough competition for funding and academic jobs locks out promising, let alone late-attempting, candidates like me. Second, I am far better off financially: Fulltime students pay taxes, but they don’t pay into Employment Insurance (understandably) nor into the Canada and Quebec Pension Plans (more worrisome, and I’ll tell you why). But third — and worst of all for students — if you haven’t built up several years of contribution and deduction limit accumulations through prior and ongoing employment income, your RRSP participation will be severely limited (the deduction limit is set at 18 percent of earnings through employment). Line 130 on the federal tax form – where you log income from scholarships – doesn’t count towards employment income.
The Registered Retirement Savings Plan, or RRSP, is the most significant tax shelter available to all Canadians. Through the home buyer’s plan, Canadians may borrow up to $20,000 from their RRSP towards the down-payment on their first home (which, in turn, is the most significant tax-free investment available to Canadians). So an early start in building up an RRSP fund is very important. Having an RRSP provides security and latitude for further studies and other life projects, such as having a family. My ability to own my home, rent out a room and borrow from my RRSP under the Lifelong Learning Plan helps me continue my studies and research.
Many people, especially those without recent experience in graduate school, think the trade-off for the regular academic route is a fair one: as a grad student, your studies are subsidized by taxpayers and your share of the investment is forgoing regular employment for the education that eventually leads to higher pay and better prospects for retirement.
However, the work you do at the graduate level benefits more than just you. I would argue that to make up for these long years of unemployment, part of what students are taxed on – say, fellowships – should be recognized as income by the Canada Pension Plan, because income during every year after age 18 will be calculated into your ultimate pension allotment at the end of your working life.
And, while delaying the adult obligations of pensions, home-buying and retirement savings may seem normal to many 20-somethings, this delay is “normal” in the academic world only because it is so difficult to combine employment income and study. This can create a disequilibrium between young adults who are in grad school and those who are already employed that is neither helpful nor progressive. Unless something changes in the tax system, a better method is to work, contribute to RRSPs, and build a nest egg that you can then use to fund a life project – including a graduate-level thesis.
Jane Sorensen is a non-profit project manager and independent reader in animal studies. She recently completed a graduate diploma in management in international business at McGill University.