Smart Tax Planning for Students
With rising tuition costs, every penny counts. Statistics Canada reported on Sept. 12, 2012 that Canadian full-time students in undergraduate programs paid an average of 5% more in tuition fees for the 2012/2013 academic year compared to last year. Taxes may not be top-of-mind as students become engrossed in school schedules, but a little research can pay off in spades.
I had the pleasure of interviewing tax expert, Aurele Courcelles of Investors Group, about how students can benefit from smart tax planning, as well as to talk about other ways students can improve long-term finances. Below are the highlights of our discussion, including practical tips to help gain the most from your tax return.
Education Amount: Students are able to claim a full-time Education Amount of $400, or part-time amount of $120, for each month (or part of a month) in the year in which they were enrolled in a qualifying program at the post-secondary level.
Textbook Amount: Students can claim a standard Textbook Amount for each month that they qualify for the Education Amount.
Tuition Amount: Students may claim tuition fees paid for courses taken at an educational institution certified by Human Resources and Skills Development Canada. To qualify they must have paid more than $100 in tuition fees for the year.
Interest on Student Loans: Students may be eligible to claim an amount for the interest paid in 2012 or the preceding five years on student loans, if they received it under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial government laws.
Moving Expenses: If you are moving this year you may be able to claim a tax deduction for expenses paid. As long as you have moved 40 kms closer to the educational institution you will be attending, you are eligible for deductions on expenses. If this is the case, you can claim anything related to the move: moving truck, meals while in transit, cost of canceling a lease, utility hook-ups, etc. Aurele does reiterate that you must be earning income in the new location to benefit from this tax benefit.
Transit Passes: Students can claim the cost of their transit passes. The refund is based on the total amount you paid so that even if you are not eligible for a student pass (e.g. OC Transpo only sells adult passes to people over 19 years), you can claim the cost of your adult pass and receive the appropriate percentage per cost.
RRSP Contributions: In an ideal world, students would contribute to an RRSP early. However, the reality is that most students do not have the luxury of extra income to contribute to an RRSP. But, it is important to file a tax return as soon as you start earning income so that you can start accumulating contribution room. Many students think that filing their taxes is a waste of time, given how little money they earn, but they are forgetting the bigger picture. The earlier you start filing, the more contribution room you accumulate so that you can transfer a larger amount into RRSPs in the future when you earn a more significant salary.
Living Arrangements: When it comes to tax benefits, living at home or on your own is no more advantageous than the other. However, in terms of finances, there is no question that living at home makes more sense. Not only do you have the opportunity to save any income earned, you also benefit from free meals, free rent, heating, electricity, etc. If you get along with your parents and attend a post-secondary institution in your area, stay at home as long as you can. These few years of saving will really help you get ahead finance-wise.
In the end, Mr. Coucelles reminds students to gather the appropriate receipts throughout the year and to keep these receipts and supporting documents for six years. One of the best resources for students with questions about tax issues is the CRA website. For more information on various tax topics consult: www.cra.gc.ca/students.