With costs going up to attend post-secondary institutions, it is more important than ever for students to understand how they can maximize their funds during the student years. One potential avenue? Saving money on income taxes!
Tuition tax credit
The biggest credit in terms of dollar value is typically the tuition tax. Students are eligible to claim a federal non-refundable tax credit equal to 15% of eligible tuition fees. These credits can turn into massive carryforward amounts that can result in large refunds when the student graduates and starts working.
The tuition tax credit is granted to students who attend a qualifying educational institution in Canada, typically including universities, colleges, and other post-secondary level institutions (including select occupational skills courses). Students need to download Form T2202A from their university website and those attending foreign educational institutions need a copy of Form TL11A to claim tuition credits.
Scholarships and bursaries
Students can often apply for scholarships, a great way to help ease the burden of the large financial cost of post-secondary programs, and which are typically awarded in the form of scholarships, bursaries, and research grants.
TAX TIP You may not have to include scholarships or bursaries in income at all because typically, the first $500 is exempted automatically. Not only that: most awards received from university or college programs are eligible for a full exemption. To discuss this and other tax implications, please contact us now.
Registered Education Savings Plans
Another popular means of paying for schooling is making withdrawals from a Registered Education Savings Plan (RESP). One advantage of these plans is that the student (and the contributors) can withdraw the original contribution amount tax-free when required. When the student makes a withdrawal from their RESP, any interest, dividends, or gains earned from the investment of the contributions, including any government grants or incentives (e.g., Canada Education Savings Grant), will be taxed in the hands of the student. These payments are referred to as Education Assistance Payments (EAPs), and can only be made if the student is enrolled in qualifying programs.
Even with help from parents, working a part-time job and savings, students are often forced to turn to government loans or private lenders in order to fund their education. Don’t forget that the grant portions do not need to be repaid, but the loan component requires repayment, and has interest associated with it. The interest paid on student loans qualifies for both a federal and provincial tax credit if it was issued under certain government Acts related to loans or financial assistance.
TAX TIP If you are a student drawing funds within your RESP Registered Education Savings Plan and if you have multiple income sources, there is a tax savings opportunity available! If you expect to owe tax, you should make withdrawals on the contribution amounts rather than taking EAPs during the year to remove any tax liability created from receiving the payments. In order to plan which types of withdrawals to take each year, please contact us now for our tax and financial planning advice.
If a student moved to begin attending a post-secondary institution on a full-time basis, and assuming the move enabled them to be at least 40 kilometers closer to the school, they may be eligible to deduct select moving expenses. These expenses can be carried forward to later years and deducted against the same type of income if they are not fully utilized in the year in which they were incurred.
If a student moved during the year for employment-related purposes, whether it was for a summer job or a co-op placement, and they moved at least 40 kilometers away, they can also make a claim for these moving expenses during the year. These moving expenses are not allowed to be carried forward to future years unless income is earned from the same or a related job in another year.
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