The summer is almost over and across Canada young people are getting ready to head back to college and university.
Some will have a part-time job, some will not but all will have tuition fees to pay, books to buy, and for some rent and groceries to purchase. Many students, and their parents for that matter, may not realize that there may be some tax breaks available, even if the courses are taken on-line through a recognized institution.
Scholarships, Bursaries and Fellowships – Prior to 2006 only the first $3,000 received from scholarships, fellowships or bursaries was exempt from income tax. As of 2006 all such income is now tax free income!
Tuition Fees – Many students are aware that they can claim a credit for their tuition fees and some additional related expenses such as lab fees, computer services (mandatory computer may include a desktop or laptop computer). The federal tax credit is 15% of the total amount paid and there are similar credits for provincial purposes.
Education Amount – An education credit is available to both full and part time students. For 2008 the federal credit was 15% of $400 for full-time or 15% of $120 for part-time students for each month and similar credits are available provincially as well.
Text Book Amount – A textbook credit is also available to both full and part time students and works just like the education amount. For 2008 the federal credit was 15% of $65 for full-time or 15% of $20 for part-time students for each month and again similar credits are available provincially as well. With the textbook credit the actual cost of the textbooks are not claimed but only the credit of $65 or $20 per month regardless of whether books were purchased or not.
It is important to note that tax credits may only be used to reduce taxes payable to zero. Many students may not have to pay tax and the unused tax credits for the tuition, education, and textbooks can be carried forward indefinitely to offset income in future years. As an alternative, up to $5,000 of the unused federal credits may be transferred to a parent or grandparent. The credits transferred must be claimed in the year they are transferred.
Moving Expenses – Moving expense deductions are one of those unknown tax deductions that are available to students. Full-time students at a post-secondary institution in Canada who had to move 40 kilometres or more may deduct moving expenses against employment income in the year moved or in the year following the move.
Moving expenses include the cost of travel, including meals and accommodation, to move the household; Expenses related to termination of existing living arrangements (lease cancellation fees, home selling expenses, disconnection and re-connection of utilities resulting from the move; and Storage and up to 15 days of temporary living expenses.
Moving expenses are a tax deduction and reduce taxable income which is then used to calculate taxes payable while tax credits are a direct reduction in taxes payable. If a student has moving expenses, these expenses as well as all other credits should be claimed before claiming the tuition, education, and textbook tax credits. The unused tuition, education, and textbook tax credits may be carried forward indefinitely or a portion transferred to a parent and grandparent while moving expenses and other tax credits are time limited.
Other Tax Credits & Deductions – Other tax credit available to students include the federal transit pass tax credit and medical expense tax credits. Other deductions that may be beneficial include the child care deduction and in certain circumstances RRSP contributions although RRSP contributions made do not need to be claimed and can be carried forward.
Students should file an income tax return even if they did not earn enough money to pay income taxes. Other reasons to file include:
- If a student worked part-time and had income taxes deducted from their pay, but their annual salary was $9,600 may be able to claim a refund.
- Students may be eligible for the GST rebate and may only apply by filing an income tax return.
- A student with earned income but was not required to pay tax will still have their income included to establish RRSP contribution room.
RRSP Withdrawals – Student with an RRSP may withdraw funds tax free from their RRSP either for themselves or a spouse (but not both) to attend a qualified full-time education institution. The maximum withdrawal is $10,000 in one year and not more than $20,000 over a four-year period.