Taxation for Students

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pencil and paper_close upGoing to university can be a big change for a lot of students. They are finally adults, they might move away and there are a lot more responsibilities. One of these responsibilities that might seem a bit muddy is filing a personal tax return.

Why file?

Many students  think that because they won’t owe any tax they don’t have to file a return. However, by doing so, they could be missing out on a great deal of credits and benefits.  Of course, if the student owes tax, they must file a return regardless. If they don’t file a return they won’t be able to:

  1. claim a refund on that summer job they worked – any tax paid on earnings will likely be refunded due to the education tax credits;
  2. apply for GST/HST credit, which is a tax-free payment four times a year, or similar provincial payments, such as the Carbon Levy Rebate Alberta will offer commencing in 2017; and
  3. carry forward or transfer education-related amounts.

How to File?

There are numerous free tax preparation software products that are fairly easy and simple to use. Canada Revenue Agency (“CRA”) has a few it recommends listed on its website at http://www.cra-arc.gc.ca/netfilesoftware/.  If “online products” is clicked, it should list the various free tax preparation sites.

If all of the tuition, education and textbook credits claimed in a year are not used, there are two available options. There are free tax clinics put on by university or college  tax clubs.  Some companies will also travel to  schools and provide tax services for free. Students should pay attention around February and March for notices regarding these services at their schools. CRA also has a program called the Community Volunteer Income Tax Program that works with community organizations to put on tax preparation clinics where students and other low-income people with simple tax returns can get their returns prepared.

What to File?

Usually students’ tax returns are fairly simple – there isn’t a lot going on in them as students are focused on school throughout the year. The following are some items that would typically be expected on a college/university student’s return (the list is not comprehensive, but is a good starting point).

  1. T4 – A summer job or part-time job for a student during the year is fairly common. The employer will issue a T4 outlining the amount earned, as well as taxes, CPP and EI paid.
  2. T4A – This slip documents the scholarship, fellowship and bursary income received by the student. Registered education savings plan payments are also noted here.
  3. T5 and T3 – Some students may have investments and the income would show up on these slips.
  4. T2202A – This slip outlines the months enrolled in school (on which the education and textbook credit is calculated) as well as tuition paid to the institution in the year. Many educational institutions make these receipts available through their student portal, and do not send paper copies to students. Tuition credits are based on actual costs of educational programs.  The education and textbook credits are calculated based on the number of full-time and part-time months a student is enrolled. Textbook receipts and other student-related receipts do not have to be saved (for tax purposes) as these credits are flat monthly amounts.  It is also important to note that when the full amount of these credits can’t be used by the student, they can be transferred to the student’s parents or common law partner, as detailed below.
  5. Interest paid on student loans – this is more applicable to people who have graduated, as most student loans don’t incur interest until after the student graduates, but there is a credit for this interest paid. The loans must be made under the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Apprentice Loans Act or the equivalent provincial or territorial law. If there isn’t enough income to fully claim the interest credit, then the amounts are able to be carried forward and applied within the next five years.
  6. The 2016 Federal Budget had some significant changes for students. The Government has pledged to increase the funding for the Canada Student Grant by 50% for both full and part-time students. Moving expenses – a student who moves at least 40 kilometers away from home to go to school is eligible to claim moving expenses on their return. However, it is only deductible against scholarships, fellowships, bursaries and grants that are related to schooling. These amounts can be carried forward to offset future income of the same kind. Expenses related to a move to earn income from employment or business (such as moving back home to take up a summer job) can be deducted to the extent of income from that activity.
  7. Public transit amount – bus passes and similar costs of regular public transit usage generate a tax credit. Most post-secondary institutions in Alberta are presently involved in arrangements with the public transit authority in their city to provide lower cost public transit. In these situations, all students enrolled at the school pay for this transit. These amounts paid are eligible for a credit, and the receipt is usually available through the school’s student portal.
  8. Child care expenses – if students have to pay someone to look after their child(ren) while they attend school, some or all of these amounts are deductible.

What to do With Extra Credits?

Often, students have limited income, and don’t need all of their credits to eliminate their own taxes payable.  If all of the tuition, education and textbook credits claimed in a year are not used, there are two available options. The first is that they can be transferred to a spouse or common-law partner, or to the student’s parents or grandparents, or even the parents or grandparents of the student’s spouse or common-law partner. To facilitate this transfer there is a section on the T2202A that must be filled in and signed by the student which should be held by the person receiving the transfer in case CRA asks for a copy. The maximum amount that can be transferred is $5,000, less the amount required to reduce the student’s own tax payable.  The order in which credits are claimed is set by income tax law, so the education credits must sometimes be used by the student in priority to other credits.

There are free tax clinics put on by university or college’s tax clubs.  Some companies will also travel to  schools and provide tax services for free. Students should pay attention around February and March for notices regarding these services at their schools. The other option is to carry forward the remaining balance, including those exceeding the transferable amounts. Education and tuition amounts must be used to the extent possible in the current year. However, during school when most students’ incomes are summer jobs, they end up having a balance that isn’t used at the year-end (even if some is transferred). Any unused portions of the tuition credit for the year will be carried forward indefinitely until it can be used.

What Educational Institutions Are Eligible?

The following is a list of the types of institutions that offer education eligible for the tuition credit:

  1. Canadian universities, colleges and other post-secondary schooling in Canada;
  2. institutions provided courses geared towards developing skills in an occupation that have been certified by Employment and Social Development Canada;
  3. schools outside of Canada which offer degrees at the bachelor level or higher where the course lasts at least three consecutive weeks; and
  4. universities in the United States that offer post-secondary schooling, if the student is living in Canada near a border throughout the year and commutes to the institution.

2016 Federal Budget –  What Changed?

The 2016 Federal Budget had some significant changes for students. The Government  of Canada has pledged to increase the funding for the Canada Student Grant by 50% for both full and part-time students. It has made changes to loan repayment regulations so that students do not have to repay their Canada Student Loans until they are making at least $25,000 per year, which allows them some time to get on their feet after university.

The education and textbook credit however, will only be available for eligible enrollment in 2016 and prior years, as the budget eliminated these credits for 2017.  Tuition amounts will still be able to be claimed. Any unused amounts from prior years will still be available for carry forward.

Conclusion

Many students  think that because they won’t owe any tax they don’t have to file a return. However, by doing so, they could be missing out on a great deal of credits and benefits.  It is important to keep all the tax slips received and to have records of all receipts for the above listed deductions and credits. Because they move frequently, students have an abnormally high incidence of slips that do not arrive in the mail, and as part-time jobs can be fairly short-lived, many students have multiple slips for such employment. Therefore, it might be useful to register for “My Account” with CRA, which allows a user to view and download income slips filed with CRA. This will ensure that no slips are missed when filing.

Filing a tax return can be a new and daunting experience for students, but it is worth it to take advantage of things like the GST/HST credit as well as the tuition carry forward amounts, and to claim any refund owed.  And, of course, they will need to file when they graduate and put that education to use in the workforce.

A Publication of CPLEA