More tax credits and deductions to ease tuition shock
Parents with kids in post-secondary schools often get a case of sticker shock around this time of the year. Luckily, there is some tax relief at hand with various deductions and credits available for students. I looked at a few of these last time, including the tuition and education credits. Here are a few more tax-saving ideas for parents with a case of tuition shock.
Prior to 2011, Canadian students in full-time attendance at a university outside of Canada were eligible for the Tuition Tax Credit, the Education Tax Credit, and the Textbook Tax Credit, as long as they were enrolled in a course lasting at least 13 consecutive weeks and leading to a degree. Similarly, a Canadian student can currently receive Educational Assistance Payments (EAPs) from a Registered Education Savings Plan for enrolment at an educational institution outside Canada that provides courses at a post-secondary school level, provided the student is enrolled in a course of not less than 13 consecutive weeks.
However, in light of the fact that many programs at foreign universities are based on semesters shorter than 13 weeks, changes to the Tax Act reduced the minimum course-duration requirement from 13. The 13-consecutive-week requirement for EAP purposes was also reduced to three consecutive weeks when the student is enrolled at a university in a full-time course. However, from 2017 on, this is only relevant for the tuition tax credit.
Credit for interest on student loans
A student may also claim a personal tax credit equal to the lowest tax rate (15% for 2017) multiplied by the amount of interest paid in a year, or any of the previous five years, on a loan made under the Canada Student Loans Act,Canada Student Financial Assistance Act, Apprentice Loans Act or a similar provincial or territorial program to students at the post-secondary school level. Unlike the tuition credit, this credit is not transferable; the claim is available only to the person who received the loan or who legally owes interest on the loan. However, the interest may be paid by the student or a person related to the student.
Note that the credit applies to interest only and not repayment of the principal. Moreover, it does not apply to interest accrued but not paid or to any forgiven interest. Institutions administrating the student loans will usually provide students with statements indicating the eligible interest payments.
The receipt of the student loans itself is not taxable, i.e., because it is a loan rather than an income item.
Prior to July 1, 2017, students were able to claim a tax credit for the cost of monthly or annual public transit passes. However, this credit was eliminated for transportation that occurs after July 1, 2017 (per the 2017 federal budget). So for 2017, students can at least claim a credit for the first part of the year for his or her eligible transit costs (and can also be claimed by a spouse or common-law partner and dependent children under the age of 19 years).
Tips for filing a student tax return
In order to claim the various credits, the student will need to file a tax return. Although this may seem like more homework for your child (or, more likely, you) there are several other advantages that may be available by filing a tax return, including the following:
- Tax refund. A student can be entitled to a refund of tax that was withheld by an employer on a summer job. However, this money is not available unless a return is filed.
- Government cash. Older students may be entitled to receive cash from the government. Although students will usually not actually owe any tax because of the tax credits and deductions available, a number of credits are linked to income, such as GST and provincial tax credits. For example, if you are 19 or over, you may be eligible for the annual GST/HST Credit, which is paid in quarterly installments. You apply for it by filing a tax return and completing the GST/HST application section of the return.
Also, some provinces provide tax credits for low-income taxpayers, which are paid in the form of a tax refund. Check out what is offered in your province.
- RRSP contributions. Filing a tax return can establish RRSP “contribution room” – i.e, the ability to make future contributions to an RRSP. The student does not have to contribute now, since any unused contribution room can be carried forward indefinitely.
- Moving expenses. If students leave home to attend university, they can deduct expenses to move to the school if they have income from scholarships or a part-time job at that location. Students can also deduct moving expenses to return home against income from summer employment. (Note that other deductions, such as childcare expenses, are available to parents who go back to school). Expenses may include temporary accommodation near the old or new residence (up to 15 days), gas, meals and lodging en route. If the move is farther afield, don’t forget plane fare.
Previously published in The Fund Library on December 14, 2017 by tax and estate planning lawyer, Samantha Prasad.