Tax Tip Thursday

Thought we would talk about students, tuition and taxes since they are all heading off to school next week!

If you are a student and working (making less than $173k), you get a basic personal exemption of $16k! This means that you can make that tax free without even considering any deductions.

This is becoming more and more important as the cost of living keeps going up.

Some tax opportunities in addition to the $16k tax free…..

Tuition

If you are a student in college or university at an “accredited” educational institution, the tuition is available for tax credits on your personal tax return.

There is a list available at the CRA of “accredited” Educational institutions – it can be found on my website under this week’s show.

List of designated educational institutions – Canada.ca

For tuition at a Canadian institution, you will receive a T2202 certificate through your student portal. This is REQUIRED in order for the tuition to be deductible.

For tuition at a US institution (or another country), you will receive a T11A, C or D depending on the country and your residence status for tax purposes.

This will allow the deductibility of the tuition as well on your Canadian tax return.

If the amount of your tuition tax credit is more than you can apply to your taxes this year, that means you have a “remainder”. You CAN transfer some of this remainder to a spouse or other eligible family member, such as a parent or grandparent, for them to use as a tax credit.

But if you need the credits to reduce your calculated tax payable to zero you have to use them and you CANNOT transfer them.

There are various arguments and discussions about whether you should or should not make that transfer. I usually suggest that if the parents paid the tuition, you might want to let them have the credit.

If the student paid their own way, they will probably want to hang on to the tax credit for when you can make the best use of them.

In a single year, you can transfer a maximum of $5,000 minus the amount you used to lower your own taxes. You must sign your T2202 certificate in order for this to be transferrable.

If there is a remainder after that, then carry forward that amount by filling out the rest of Schedule 11.

The remainder will carry forward indefinitely for you to use when you have more income.

Please remember you HAVE to file your tax returns for the years that you are a student, otherwise, NONE of this applies.

Accomodations

If you are living off campus (and not at home), make sure you get the rent receipts AND file a tax return. It does not matter who pays (ie. Your parents), you will get the benefit! And there is a benefit!

Depending on how much your rent is and how much you made, you could see a Trillium benefit next year of as much as $200 – $1000 for the year! You receive it as a monthly amount (1/12th each month). BUT you have to file a return!

Interest on student loans

If you had student loans, then you will most likely have interest accruing when you get out of school. The interest that you pay is tax deductible.

The key being – that you had to pay it. If you do not make your payments, there is no deduction.

Some very specific things you want to keep in mind:

Only you can claim an amount for the interest you, (or a person related to you), paid on that loan in 2019 or the preceding 5 years.
You can claim an amount only for interest you have not already claimed. If you have no tax payable for the year the interest is paid, it is to your advantage not to claim it on your return and instead carry it forward to any of the next 5 years.

You cannot claim interest paid on any other kind of loan or on a student loan that has been combined with another kind of loan.

If you renegotiated your student loan with a bank or financial institution or included it in an arrangement to consolidate your loans, the interest on the new loan does not qualify for this tax credit.
In addition, you cannot claim interest you paid because of a judgment obtained after you failed to repay a student loan.

There are many ways to save on your taxes as a student!  Make An Appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.