Tips on Filing a Student Tax Return

student tax return

With many post-secondary students starting school in September, now is a great time to go over the tax rules that may specifically relate to them. Students can benefit from various deductions and credits, and some credits are also available for transfer to parents who often help to pay for the student’s education.

Why should students file a personal income tax return?

It is understandable that many students with low income and no income tax to pay may be reluctant to spend time (and money) filing a tax return. The following are a list of benefits to filing:

  • Helps establish carry-forward amounts to be used in future years.
    • A part time job can generate registered retirement savings plan (RRSP) contribution room for the future, allowing the student to contribute and claim a tax deduction in a future higher income year.
  • Tax withheld from a part time job may be refunded depending on the income level of the student.
  • Many students often don’t earn enough income to fully use the tuition and related tax credits.
    • These may be transferred to certain close family members or carried forward and used in a subsequent year.
    • A tax return must be filed in order for Canada Revenue Agency (CRA) to acknowledge the transferred amount or amount to be carried forward.
  • Eligibility for the GST/HST credit is determined by CRA once your return is filed.
    • GST/HST is a tax-free quarterly payment that helps individuals with low or modest incomes offset part of the GST that they pay.

Common types of income for students include:

  • Employment income (reported on a T4 slip)
  • Employment income not reported on a T4 slip (including tips)
    • Earned tips and gratuities represent taxable income and should be reported on annual income tax returns.
    • When preparing their return, the employee may wish to contact their employer to determine if the tips/gratuities have been included on the T4; otherwise these amounts should be tracked and reported separately.
  • Scholarships, bursaries
    • The total amount of the award qualifies for the scholarship exemption (i.e. not taxable) if the award was received with respect to enrolment in a program that entitles the student to claim the education amount.
    • If the recipient student is not eligible for the full-time or part-time education amount, the portion of the award that is greater than $500 is taxable.
    • These are reported on a T4A slip.
  • Interest and other investment income
  • RESP payments (see below)

Registered education savings plan (RESP):

Another common type of income for a student includes income from an RESP. How does the RESP work?

  • The subscriber makes contributions to the RESP.
  • These contributions cannot be deducted from their income on their tax return.
  • Contributions that are not paid out to the beneficiary are generally paid back to the subscriber at the end of the contract (these do not have to be included in their income when paid back).
  • The promoter pays the contributions and any income earned on those contributions to the beneficiary(ies).
  • The income earned on the contributions are paid to the beneficiary as educational assistance payments (EAPs) and are included in the beneficiary’s income in the year they are received.
  • The contributions that are paid to the beneficiary are not included in income when received.
  • As the subscriber makes contributions, government grants (if applicable) will also be paid to the RESP.
  • Government grants include the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), or any designated provincial education savings program.
    • CESG – basic grant of 20% of annual contributions to a maximum of $500 in respect of each beneficiary. There is a lifetime limit of $7,200. There is also an additional grant that is based on net family income.
    • BC Training and Education Savings Grant (BCTESG) – this is a new grant in which the BC government will contribute $1,200 to eligible children.

     

Tuition, education, and textbook amounts

  • Tuition paid and the number of full-time or part-time months enrolled are detailed on a tuition slip (T2202).
  • The education amount is calculated as $400 times the number of months enrolled as a full-time student and $120 times the number of months enrolled as a part-time student.
  • The textbook amount is calculated as $65 times the number of months enrolled as a full-time student and $20 times the number of months enrolled as a part-time student.
  • Note that actual textbook receipts are not required and living expenses and school supplies are generally not deductible.
  • Tuition, education, and textbook amounts must be claimed on the student’s return first.
  • If all of the credit isn’t required to reduce taxes payable, the student can either transfer the amount to certain closely related persons or carry forward the amount.
  • The student can transfer an amount equal to $5,000 minus the amount used to reduce his/her own taxes payable to a spouse or common-law partner or a parent or grandparent.
  • If an amount is carried forward, it can no longer be transferred to anyone.
  • Even if a student has no tax to pay and the tuition is to be carried forward, he/she should file a return in order for Canada Revenue Agency (CRA) to update their records of the unused amounts.

Interest on student loans

  • A student may be eligible to claim an amount for the interest paid on his/her student loan in the year or the preceding five years for post-secondary education if the loan was received under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial government laws.
  • If there is no tax payable for the year the interest is paid, it is to the students’ advantage not to claim it on the current year’s tax return; rather it can be carried forward and applied on a return for any of the next five years.

These are just some of the income tax related issues that apply to post-secondary students.

As always, if you have any questions about this or anything else, please don’t hesitate to contact our office.

Written by Shannon Sekulich

I obtained a diploma in Business Administration – Accounting Option from Camosun College in 1999 and shortly thereafter wrote and passed the Graduate Management Admission Test, allowing me to apply for admission as a student in the School of Chartered Accountancy at the Institute of Chartered Accountants of British Columbia.

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