Canadian students qualify for a healthy menu of tax credits but the majority don't have enough knowledge to confidently prepare and file their tax returns.
A recent report for H&R Block found Canadian students are sadly deficient in their knowledge of taxes. More than three quarters said they didn't have enough knowledge to confidently prepare and file their tax return even though 28 per cent file their own returns. When asked to rate their own tax knowledge the students gave themselves a 2.8 on a scale of one to five.
Forty-five per cent "have no clue" how long their unused tuition and education amounts can be carried forward. The majority of students said they wished they knew more about taxes and finances and more than a third who prepared their own returns were disappointed by their tax refund.
"Students qualify for some of the most generous tax credits available so it's important they understand how to maximize their tax return and claim everything they're entitled to," says Cleo Hamel, senior tax analyst for H&R Block. "Even when asked fairly straightforward questions about tax returns, most students did not know the correct answer. This survey speaks to the financial literacy issue -- parents and schools need to step up and help our youth get better informed."
Here's a taste of the menu of tax goodies that are available to Canadian students.
Students can claim a credit for textbooks. Post-secondary students can claim $65 for every month they qualify for the education amount and part-time students can claim $20 per qualifying month. The credit does not depend on how many textbooks you purchase - it is standard for every student who qualifies.
Scholarships and bursaries are tax free if the related program qualifies for the education amount. This includes scholarships at the elementary and secondary school level, but not post-doctoral.
For students who depend on transit to get to campus, keep your passes to claim the Transit Tax Credit. The program also includes some electronic tickets and weekly passes purchased for four consecutive weeks. You need the receipts and transit passes to back up your claim.
Students turning 19 before April 1, 2015 should file a 2013 tax return even if they had no income. This will allow them to collect the GST/HST credit for the first payment period following their birthday.
No matter who paid the tuition, the student will receive a T2202A for the amount of tuition paid for 2012. If you do not receive a T2202A, you cannot claim tuition. The form allows you to claim tuition and education amounts as well as the Textbook Tax Credit.
A student must use their tuition and education amounts on their tax return first to reduce their tax payable to zero before deciding whether to transfer an amount to a parent, grandparent or spouse. The student can transfer up to $5,000 in one year and any amount remaining is carried forward to use in future years. Once the credits are carried forward, they cannot be transferred.
If you have an RRSP, you can withdraw up to $10,000 per year without penalty to finance your post-secondary or post-graduate studies (to a maximum of $20,000). Students must be enrolled full-time to qualify for the Lifelong Learning Plan or have a written offer to participate in a full-time program. Spouses and common-law partners can use the LLP for each other's schooling. Once funds are repaid to the RRSP, a student can begin participating in the LLP again.
If you move more than 40 kilometres to take a summer job, you may be able to claim moving expenses against your employment income at the new location. Deductible expenses include travel, transportation, storage and the cost of meals and temporary accommodation for up to 15 days.
Interest on government and provincial student loans that you are repaying is deductible. Loans and credit lines outside of the government program are not deductible.
"Understanding your tax return is an important part of your financial plan and you should be involved in the preparation," says Hamel. "No one wants to pay the taxman more money than necessary, so spending time to make sure your return is completed correctly may mean a few extra dollars on your refund."
Talbot Boggs is aToronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
