As Labour Day approaches, students might be surprised to learn that planning for school also means that they should be thinking about next year’s tax-filing deadline. According to the Institute of Chartered Accountants of Ontario, there are taxation-related steps a student can take to minimize the costs of university. Here are some tax tips from CAs to help students save or even earn money on their taxes.
- Scholarship income - Currently, scholarship, fellowship or bursary income received by a taxpayer in a taxation year with respect to post-secondary education or occupational training is not included in income. For taxation years before 2006, the first $3,000 of this income was exempt from tax.
- Textbook expenses - In 2006, the federal government introduced a non-refundable tax credit to assist with the cost of textbooks for post- secondary students. The textbook tax credit is calculated based on $65 for each month the student qualifies for the full-time education tax credit and $20 for each month the student qualifies for the part-time education tax credit.
- Reduce a supporting person’s taxes - The education, tuition and federal textbook credits arising during the year can be transferred by a student to a supporting person such as a spouse or a parent who allows them to claim the credit and reduce their taxes.
- Unused tax credits - If students have any education, tuition fee or federal textbook credits that aren’t claimed or transferred, they can carry them forward to reduce their taxes in the future when their income is higher. They have five years to claim tax credits for student loan interest, but they can carry forward and claim education, textbook and tuition fee credits indefinitely.
- RRSP contribution room - Even if students are not expecting a tax refund, if the student has earned income, filing a return could provide some welcome tax relief in the future. Students receiving this income should always file a tax return because it will generate Registered Retirement Savings Plan (RRSP) contribution room.
- Tax refunds - Depending on a student’s earnings from summer or part-time jobs, they may qualify for tax refunds, especially if they apply and qualify for GST rebates, tuition credits, education credits or the student loan interest credit.
- Transit expenses - Since July 1, 2006, the federal government has offered a non-refundable tax credit to help pay the cost of public transit passes that are of monthly or longer duration. For 2007, this credit has been expanded to include payments for electronic payment cards and weekly passes where an individual purchases passes for 4 consecutive weeks. Students need to remember to keep receipts so that a credit can be claimed.
- Moving expenses - Students who move to attend full-time post-secondary school may claim costs associated with moving. Whether studying in Canada or outside the country, students can deduct moving expenses, but only against income from scholarships, fellowships, bursaries and research or similar grants (that isn’t exempt) or from part-time jobs they hold while going to school. The biggest benefit comes in the year the student leaves school and begins their new job as the moving costs can be deducted against their new employment income. Moving expenses can also be deducted if a student moves from school to home or another location to work at.
As always, individual situation will dictate whether these or other tax strategies best apply and conditions must be met in some cases.
The Institute website is: www.icao.on.ca and the student website is www.ca2b.biz.
Source: Marketwire, Aug.15,2007