Your Finances with Stephen Maltby
Here are my five top tax tips for students as prepared by our Planning Experts at CIBC Wood Gundy:
1. Maximize non-refundable tax credits.
If your son or daughter earned income during the year, perhaps from a part-time or summer job, then the various nonrefundable credits available should come in handy to reduce federal, or in some cases, provincial taxes payable. The most common credits for students include: tuition, education and textbook credits, a credit for the cost of public transit passes, a credit for interest paid on certain student loans and, if the student had employment income, the Canada employment amount.
Exam fees paid for licensing or certification in many professions and trades are now entitled to the 15% non-refundable tax credit. If the student travels abroad, the minimum course duration has decreased from 13 weeks to three weeks to be eligible for the tuition tax credit.
2. Scholarship is tax-free!
The tax rules changed back in 2006 to exempt the full amount of any scholarships, fellowships, bursaries, study grants and artists’ project grants received by students from tax, provided the program enrolled in entitles the student to the education credit.
3. Report only the EAP portion of RESP withdrawals.
Only the Educational Assistance Payments (EAPs) from a Registered Education Savings Plans are taxable in the hands of the student. EAPs include the income, growth and Canada Education Savings Grants (CESGs) paid out of the RESP. Your son or daughter could sign a form and redirect the proceeds from the EAP to you, if you paid their tuition expenses in advance of requesting a RESP withdrawal. Any PSEs (Post-Secondary Education Payments) will be paid to your child tax-free as these are the funds or capital that you contributed into the plan, which is now being redirected to your kids.
4. Claim moving expenses.
If your son or daughter moved to attend school, moving costs can be deducted. Also, if he/she moved back home from school during the summer months to earn employment income, moving costs can be deducted against his/her summer employment earnings. In either case, the move must be at least 40 kilometres closer to school or work.
5. Consider a TFSA for extra cash.
Has your child saved some extra cash from working during those summer months? Why not sock up to $5,500 per year into a Tax-Free Savings Account (TFSA). The money grows tax-free and he/she can access the funds at any time, for any reason. Plus, any amounts that are withdrawn, other than to correct over-contributions, can be re-contributed, beginning the following year.
Stephen Maltby is an Investment Adviser and Chartered Accountant with CIBC Wood Gundy. He has been in the financial services industry for more then 30 years and has held various accounting, investment and management positions with several accounting and investment firms over the years. He is in addition to his Advisor role a First Vice-President and Executive Director Atlantic Canada, CIBC Wood Gundy.