Student tax tip

The 2006 Federal Budget made all income from scholarships, fellowships and bursaries tax exempt. Previously, only the first $3,000 was tax exempt.

It's time once again for the return of the big money campus triumvirate: Tuition fees. Textbooks. Tax breaks.

You may raise your eyebrows at that last one. But these days, tax breaks are as much a part of a college or university student's financial life as the other two.

So, with the campus crowd heading back for another year of all-nighters, toga parties, and perhaps, just a bit of learning, here are a few money-saving tax breaks to watch for:

Tax credits

Tax credits are worth the same no matter how much one makes, unlike deductions, which are worth more for higher-income earners. The main tax credits affecting students are:

• Tuition credit: Students love to gripe about the cost of attending the hallowed halls of academia. The good news here (sort of) is that bigger tuition bills mean bigger tax credits. The federal tax credit is worth 15.5 per cent of the tuition paid. So a $5,000 tuition fee would produce a tax credit that would cut a student's federal tax bill by $775. The tuition tax credit can be claimed for tuition fees and mandatory ancillary fees only. Student activity fees, parking costs, meals, residence fees, and that new laptop can't be claimed. Nor can beer, cold pizza, or the cost of appealing that "D" in Economics 101. The institution will provide either an official tax receipt or a completed Form T2202A.
• Education tax credit: In addition to claiming tuition fees, students can claim an education amount of $400 for each month they're in full-time attendance at a college or university. Part-time students can claim an education amount of $120 a month.
• Textbook credit: Any student eligible to claim the education amount above can also claim for a textbook tax credit. The actual mount spent on textbooks is irrelevant. Full-time students can claim $65 for each month they're in school. Part-timers can claim $20 a month. No need to file receipts.
• Student loan interest credit: Students who are repaying student loans are eligible to claim the interest they're being charged, but only if the loan was made through a qualifying federal or provincial student aid program. So getting a cash advance on a credit card won't qualify, even if the money was used for post-secondary education. Nor can the interest amount be claimed if the loan has been refinanced — for instance, by combining it with other debt as part of a loan consolidation.

If students have no tax owing the year the interest is paid, then they shouldn't make the claim for that year. It's better to wait as the loan interest amount can be carried forward for up to five years and claimed at a time when tax is payable.

• Transit tax credit: Weekly, monthly, or annual public transit passes students buy to get to class by bus, subway, streetcar, train or even a local ferry are now eligible for a transit tax credit. Keep receipts or the passes themselves.

Student tax tip

Provinces and territories offer their own education-related tax credits. The credits vary, depending on the jurisdiction. KPMG has a useful table (in PDF form) that outlines federal and provincial tax credit rates and amounts.

Transferring and carrying forward credits

The tax credits mentioned so far are all referred to as non-refundable tax credits — meaning that if the total amount of the credits piled up is more than the tax owed, there's no cheque or refund coming for the difference.

So what about students who don't owe any tax, or who have far more tax credits than they need to reduce their tax bill to zero? There are two big nuggets of good news here. The claims for the tuition, education, and textbook credit amounts can be transferred to someone near and dear, or they can be carried forward indefinitely to a year in which taxes are owed.

The list of people eligible for those tax credit transfers is bigger than you might think — a student's parent, grandparent, a spouse or common-law partner, or a spouse's parent or grandparent. The maximum amount that can be transferred in a year is $5,000.

Other tax measures

Student tax tip

Mature students can make tax-free withdrawals from their RRSPs of up to $10,000 a year (up to a maximum of $20,000) to help finance post-secondary education. The Canada Revenue Agency has more information on the Lifelong Learning Plan.

Students can also benefit from several other tax credits and deductions. There's an employment tax credit of up to $250 that can be claimed by students who had summer jobs or who work during the school year.

Many low-income students are also eligible for the GST/HST credit. This is a refundable tax credit, which means that people could get money back from the government even if they don't have any income and don't owe tax. But the only way they'll get that money is if they file a return.

Students who are looking after children may also be eligible for the Canada Child Tax Benefit and the Universal Child Care Benefit. Child-care expenses can also be deducted against income, subject to prescribed limits and conditions. Moving expenses can be deducted from employment income if a student moved at least 40 kilometres to take a summer job. Expenses incurred to move back to school can also be deducted from income earned while going to school.

The Canada Revenue Agency has more information on all these tax credits and deductions in the publication, Students and Income Tax.

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