Filing tax returns as a post-secondary student can be challenging and all very confusing – we want to help! You and your family can benefit from student-based tax breaks available to Canadian taxpayers. Continue reading my blog to learn more on how you can use a combination of the following tips and tricks to save money for your education.
Tuition Tax Credits
Current year: For each year you attend post-secondary school, you are eligible to claim or transfer your tuition tax credits. The tuition tax credit is dollar for dollar for the amount of your tuition. These credits can be transferred to a parent (up to $5,000, at 15% cash value of $750), or kept until you earn taxable income.
Carry forward: As mentioned above, you have the option of keeping these credits for future years. They are considered non-refundable tax credits. This means that if your income isn’t high enough in the year you receive them, you are able to use them in a following year. This is particularly useful for students in their first year of work after school since most people end up saving up credits of 4 or more years so it’s possible that your tax credits will fully offset your working income.
Changes in 2017: You may no longer claim education and textbook tax credits for 2017
All students that are enrolled full-time in post-secondary education in 2016 use to be eligible to claim $400 and $65 per month for the education and textbook tax credit (cash value of 15% or $70). Part-time students were eligible to claim $120 and $20 per month for education and textbook tax credit (cash value of 15% or $21). In 2017, these credits will no longer be available. Due to this change, post-secondary students will see a 50% increase to the Canada Student Grants programs. Additionally, students will now have more time to pay back their loans. Starting in 2016-17, no student will have to repay their student loans until they are making at least $25,000 a year.
As of September 5, 2017, students will no longer receive a tuition or education amount credit provincially in Ontario. For 2017, you will receive a credit for any tuition paid for schooling up until September 5, 2017 and also receive the education and textbook amounts provincially up until that date. As with the federal calculations, the provincial amount can be carried forward or transferred (maximum of $7,033 can be transferred provincially, at a rate of 5.05% for a cash value of $355).
Starting in 2017, the Government of Ontario plans to offer grants to cover post-secondary tuition for low-income students. Students whose annual family income is less than $50,000 will receive grants large enough to cover their whole tuition. Grants for university students, who pay higher tuition, may not offset the entire amount of tuition. Therefore, it may not be completely free. Please follow the link for more information on how to apply here: https://www.ontario.ca/page/how-apply-osap.
Tax-Free Savings Account (TFSA)
TFSA is a powerful vehicle for students to use for tax-free investing if they have extra cash saved up for future years of school. Once you turn 18, your limit begins to build even if you don’t open an account. From 2009 to 2012, the annual maximum contribution limit was $5,000, $5,500 from 2013 to 2014, $10,000 for 2015, and $5,500 for 2016 to 2018. That means if you are 27 or older, your limit will be $57,500 and you are able to contribute the maximum. Therefore, you can contribute up to $57,500 if you haven’t contributed in previous years. Additionally, any amount you withdraw will be re-added to your balance in the following year (i.e. January, your limit will reset to your full limit minus what has previously been contributed and not withdrawn).
Registered Education Savings Plan (RESP)
RESPs are one of the most powerful investments that your parents can invest for your education as the government matches up to 20% of a set annual limit. Now that you are a student, it is time to start withdrawing these investments. I’m sure you might be curious of tax consequences associated with doing this. You are not taxed on your parents’ principle that was originally contributed; however, you are taxed on the accumulated income (grants, capital gains, interest, and dividends earned in the account).
How can you avoid paying tax on this type of income? First of all, you have personal tax credits to offset a portion of this income, and the tuition credits listed above, but if you have a part-time job in the same year that you take money from the account, it might put you over the limit. The good news is you are able to choose whether you withdraw the tax-free portion or the taxable portion. Typically, you will want to withdraw the taxed portion in years that you know you will make less money. Some examples of good times to take the money are in your first year when you didn’t have a summer job before going away to school, or when you take a summer semester at school. Those are the best times to request to withdraw the taxable portion.
Rent expense (ON-BEN)
Many students live away from home during their post-secondary years. Although this might be expensive, you will get the benefit of receiving additional income from the government. Any amounts that you pay for rent (whether or not you’re a student) can be claimed on your tax return to earn yourself government monthly payments. Each person’s situation is different and it is hard to estimate how much you will receive. However, if you use the calculator provided here, it can help you get an idea of how much you might be entitled to. Note that this credit is based on income. Also, the maximum credit available if you were in a student residence is $25.
GST/HST Tax Credit
The GST/HST tax credit works similarly to ON-BEN mentioned above. It is based on how much money you make and is for people who don’t make very much money (typically students). They get some of the taxes they pay in their daily spending back. An estimation of this amount will also be calculated for you at the link above. Please note that you must be 19 years of age or older to claim this.
As mentioned previously, many people move away for school and accumulate moving expenses. If your school is more than 40 km from your house, you might be eligible to claim moving expenses from your parents’ home to your new house. Typical expenses include transportation and storage costs, travel-related costs, and meals. These expenses can be used as deductions from any income you make when you are still enrolled in school. If your income is not greater than the basic personal amount, the deduction can be carried forward.
First Time Home Buyers Program (RRSP)
Once you graduate from post-secondary, a common goal is to start saving for a house. Here is some information on the best ways to reduce this financial burden and tips on how to save money for your first home. First, as mentioned earlier, you should use your TFSA until you have reached your contribution maximum. Once you no longer have room there, you can start to save in your RRSP. When it comes time to buying a house, you are able to take out up to $25,000 out of your RRSP to purchase your home. You will need to make 15 annual re-contributions to your RRSP starting 2 years after you took the money out to repay the loan to yourself. Additionally, in the year that you purchased the house, you may be eligible for a $5,000 non-refundable tax credit ($750 cash value) on qualifying home purchases.
Frequently Asked Questions
What happens if I didn’t file my tax returns while I was in school?
That is OK! You are not required to file your tax returns unless you have taxes payable. Some refundable amounts, such as Employee Insurance (EI) over contributions do have time limits. This means if you wait too long, you could be missing out on getting some money back in taxes. Additionally, you may want to file them to receive some of the benefits mentioned throughout this article.
Can I deduct interest paid on my student loans once I am done school?
Yes. Any interest paid on qualifying government education loans is deductible as a tax credit on your income tax return. You should receive an official tax receipt each year for the amount of interest paid.
If you have any other questions, please don’t hesitate to contact me at email@example.com or call 519-822-9933 x252. The team is always here to help as well and can be reached at 1-866-822-9992.