Canadian education credit rules have changed for students. For example, now even occupational courses provided by post-secondary institutions within Canada will be granted the tax credit. Also, beginning in 2017, in recognition of the need to support education in technical skills, the number of courses eligible for the tuition tax credit has been increased.
However, Canadian university students qualify for many unique tax credits only on filing their annual income tax return. Unfortunately, most students avoid filing their taxes and assume they can’t file a tax return as they have no, or very little, income.
Canadian students can and should file their tax returns just like any other taxpayer. and report income, claim deductions, credits for which they qualify. In this article, AG Tax analysts have highlighted a few points that Canadian student taxpayers should keep in mind before filing the Canadian Income Tax Form, T1.
Canadian Education Credits & Tax Filing Tips for Students
Tax Credits Do Not Expire
If a person is a full-time student, he/she may not be working at all or might be working on part-time basis. In such cases, the individual may not claim the credits they are eligible for, since the person may owe little to no taxes, so it may seem like all those tuition credits are going to waste. Any unused tuition/education/textbook amounts are carried forward and can be used in future years when your higher education pays off with a good salary.
Student Tax Credits Other than Tuition Credit
Effective January 1, 2017, the federal education and textbook tax credits will be eliminated. As a student taxpayer, the individual can only claim the amount paid as tuition fees. The specified amount for textbooks and a per month credit for part time or full time attendance is no longer available, however, if you have a carryover from a prior year, this is still available for use. In order to claim the tuition credits, taxpayers should keep the forms and slips, such as: T2202A, Tuition Slip properly to validate the claims.
Parents Can Claim The Tuition Credits But Not Fully
If the child cannot use the credit, parents might wish to claim the education expenses on their tax return. Students should be aware that their parents can only claim a portion of the expenses for the current tax year which the student has transferred to the parents for the purpose of tax claim. The maximum claimable amount is $5,000 less any amount claimed by the student himself/herself.
Student Loan Interest Tax Claim
In addition to tuition, a student may be eligible to claim interest on their student loans. You may be eligible to claim an amount for the interest paid on your loan during the year or the preceding five years for post-secondary education if you received it under:
- the Canada Student Loans Act;
- the Canada Student Financial Assistance Act;
- the Apprentice Loans Act; or
- similar provincial or territorial government laws.
Only you can claim an amount for the interest you, or a person related to you, paid on that loan for the year or the preceding five 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. You can carry the interest forward and apply it on your return for any of the next five 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.
Canadian Scholarship Exemption
Post-secondary school scholarships, fellowships, and bursaries are generally not taxable if you are eligible to claim the full-time education amount. This qualifies you for the full scholarship exemption. For tax years after 2016, significant changes will be made to ensure the scholarship exemption remains unaffected by the elimination of the education tax credit.
To claim the scholarship exemption, instead of having to qualify for the education tax credit in respect of the program, the student must be considered a qualifying student in respect of the program in the taxation year. The definition of a qualifying student is based on the same criteria used to determine if an individual qualifies for the education tax credit under the existing rules.
The scholarship exemption is limited, in the case of part-time programs, to the amount of tuition paid for the program plus the costs of program-related materials.
Organize and Maintain Slips & Receipts
Any deduction or credit claimed for tax purposes should be supported by valid documentation. Keep all the bills, receipts, and invoices received throughout the year properly in an organized manner to avoid time wastage when filing the year-end tax return. As a student taxpayer, it is advisable that the individual should maintain their employment slips (if any), medical receipts, textbook bills, public transit pass, rent receipts, charitable donation receipts, and/or any other payment receipts in place to support any of these expenses when claimed on the tax return.
File a Return Even If There is No Reportable Income or Refund Expected
Lastly even if the student has not received any income nor expecting a refund, he/she should still file a tax return; as this would help preserve the tuition credits for the future tax years. This makes sense to save the credit to be claimed in the future tax years when the person starts earning income or income is higher than the current amount.
That being said, preparing your tax return can be a complex process but with less or no reportable income, and fewer credits and deductions to claim, filing one’s tax return as a student can be a great learning experience to understand the various tax laws, and be informed about the credits and deductions different taxpayers can claim.
AG Tax LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
Please contact either of our offices across Canada at 604-538-8735 (Greater Vancouver), or 780-702-2732 (Edmonton and Alberta) to arrange for an appointment to discuss your tax related queries.
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.