As another school year kicks off, households of university and college students are facing the high cost of post-secondary schooling in Canada. While tuition fees are exorbitant, they are just part of the price — books, transport, home, food, and other expenses have to be factored in. Fortunately, there are quite a few Student Tax Saving chances that post-secondary students might have the ability to pursue to reduce their financial burden. In this guide, we’ll explore some of these opportunities, and we’ll discuss how students can deal with the often-surprising tax effect of withdrawing from a Registered Education Savings Plan (RESP).
Tuition tax credit (Student tax saving)
Students may claim a national non-refundable tax credit equal to 15 percent of qualified tuition fees provided the pupil is enrolled at a qualifying educational institution in Canada and pays the institution more than $100 in total expenses.
Generally, qualified educational institutions are universities, colleges, and certain other educational institutions which offer educational classes at a post-secondary degree. Since 2017, the eligibility criteria for the tuition tax credit have been extended to include fees paid to some post-secondary institution for occupational skills classes subject to specific conditions. Tuition fees paid for courses taken either online or through correspondence may also be eligible for the tuition credit.
Three provinces — Ontario, Saskatchewan, and New Brunswick — have recently cancelled the provincial tuition tax credit, but will generally allow unclaimed provincial tuition credits to proceed. The rest of the provinces let a provincial tuition credit for pupils resident in the province.
It’s possible to move up to $5,000 in current year tuition amounts to a partner or common-law spouse, or to a parent or grandparent, subject to certain requirements and constraints. Any unused tuition credits could be carried forward by the pupil to future years. Be aware that the sum allowed to be moved for provincial tax purposes may differ from the federal limit of $5,000.
Education and textbook tax credits
Effective January 1, 2017, the national education and textbook tax credits were removed. Students in British Columbia should note that 2018 is the last year the provincial education tax credit is available.
Credit for student loan interest paid
Despite savings and parental support, students might end up needing to incur student debt to subsidize their college or university expenses. Additionally, interest on these loans (where applicable) don’t generally begin to accrue until a student completes their fulltime studies. Therefore, any interest paid when due will be entitled to a tax credit which could be claimed against income earned after their studies are completed. Only interest on loans extended under government-sponsored programs will be eligible for this credit. Also, while the charge isn’t transferable, any unused portions can be carried forward for up to five decades.
By way of instance, interest on a student loan which has been combined with a non-qualifying loan wouldn’t be eligible for the credit.
Payments from an RESP
RESPs are an arrangement between the plan”contributor” (frequently the grandparents or parents and referred to here as the contributor) and the strategy”promoter” (typically financial institutions) for the student — the strategy”beneficiary” — who will generally benefit from the capital contributed to the income earned in the RESP.
The contributor makes contributions to the program. The promoter manages and invests the gifts, in addition to the accumulated income earned on the contributions. If the RESP qualified for the Canada Education Savings Grant (CESG) provided by the federal government or among those provincial savings programs, the promoter will invest the money from such deposits too.
The investment earnings and grant funds are redeemed in the student’s hands once the money is withdrawn from the program. Any such taxable obligations are known as”Education Assistance Payments” (EAPs) when paid to the student. On the other hand, the first contributions themselves can be removed tax-free — by either the student or the contributor — because they were produced from tax-paid funds.
When you’re enrolled in a qualifying educational program, you’ll be eligible for EAPs in the accumulated income earned in the program and any government grants which were paid into the program. Most full-time and part-time college and university programs in Canada will be eligible, provided the classes are three or more weeks in length and meet the minimum time requirements. Attendance at a foreign educational institution may also be eligible, subject to specific conditions. Prior to making any EAP payments, the program promoter will probably want proof that you meet the registration requirements.
Moreover, a student can withdraw contributions made into the program by grandparents or parents to help cover the expense of their education expenses. The contributor may also withdraw their contributions.
Tax implications of RESP payments
Therefore, EAPs obtained are reported on a T4A slip. When you report this income in your tax return, you might pay little if any tax after claiming deductions and credits available to you. But if you have income from other sources and expect to pay income tax in a specific year, you might want to manage the number of EAPs and non-taxable payments from the RESP.
By way of instance, if you have very little income in 1 year but expect to pay income tax at the next year on income from a summer job and part-time job throughout the school year, it may make sense to take out additional money as EAPs in the first year, subject to certain limitations. When you need to pay income tax at the next year, you should think about withdrawing more of your non-taxable RESP amounts as opposed to EAPs to help minimize your income taxes. You can attain this by specifying the amount of each form of payment when asking an RESP withdrawal from the financial institution.
Bear in mind that students should consume the government grant money and earnings accumulated in the RESP during their research — some unused grant money is going to need to be reimbursed to the government and any remaining unused income could be subject to higher taxes. Bear in mind that as long as you qualify to receive EAPs, you can use the cash for any purpose, not only for textbooks and tuition.
If you obtained a post-secondary scholarship (or certain similar kinds of financial awards), you might be exempt from having to add the funds as taxable income. The scholarship exemption applies to the first $500 and, where specific conditions are satisfied, up to the complete scholarship amount received. It’s available to qualifying students if the award is obtained in relation to the student’s registration in certain educational programs (most frequent university and college programs would qualify). However, additional concerns exist in which the pupil or financial award obtained is associated with a business or employment.
Remember your college or university includes the quantity of scholarships and similar payments on the T4A slip it issues for many scholarships, bursaries, and awards. Because of the scholarship exemption, you might be eligible to exclude all or some of the amount from your earnings. Therefore, be certain to get the advantage of the scholarship exemption where appropriate.
Students may have the ability to deduct moving costs when going to attend a postsecondary educational institution fulltime. To qualify, a student should move a distance of at least 40 kilometres closer to the school. Pupils are normally accepted as being in fulltime attendance if the school regards them as such. Accordingly, they may require a certification from the school announcing their fulltime attendance in a specific academic year or semester.
This deduction is often restricted, because scholarships and bursaries are often exempt from tax as mentioned above, and research grant income could be reduced for tax purposes by taking into consideration research expenses.
A student may also be eligible to deduct moving expenses if they move a distance of 40 kilometres for employment, like for a co-op positioning or a summer job. In cases like this, qualified moving expenses may only be deducted from income earned in the year with that employment supply.
Pupils who incurred qualified moving expenses to attend an educational institution full-time and to be utilized (e.g. on a part-time foundation ), can deduct the moving expenses up for their earnings for the year from taxable scholarships, bursaries, and study grants, and by their employment income earned in the new job location.
Normally, unused moving costs may be carried forward to future years and deducted from the
corresponding revenue kind — that is, qualified moving expenses for schooling could be applied against taxable scholarship and research grants, and qualified moving expenses for work may be applied against employment income in a future tax year. However, students are usually not allowed to deduct moving expenses carried forward against employment income earned from an unrelated occupation that they started after finishing their studies.
Funding post-secondary education may be an expensive endeavour. But if properly maintained, the tax breaks specifically targeted to students can help alleviate some of the financial burden of post-secondary schooling. A BDO advisor can provide additional insights about the best way best to finance postsecondary education in the handiest method.