Blurb: Most Canadian students receive little or no revenue, so filing a tax return should be fairly simple, right? Wrong. The profile of the typical student is changing and like most tax issues, the related provisions are numerous are numerous and complex.

The ABCs of income tax filing for students

By Peter Diekmeyer o Bankrate.com

With the changing economy, education has become a never-ending process. The universities are filled with older students going back to do a second degree, part-timers, who want to add to their skill-sets and traditional students who live at home and whose only income comes from a summer job.

"We get all kinds," says Zeeshan Schahid, a third year accounting student, who recently organized The Concordia University Tax clinic, through which 15 volunteers provided other students low cost tax return preparation services. "While its true that most students don't have that many slips, the sheer variety of situations we see, means that there are few hard and fast rules."

Like all taxpayers, students are required to declare all of their taxable income. That includes traditional income from part-time and summer work as well as interest revenues.

Scholarships revenue
Students need to remember that scholarships, bursaries and certain types of financial assistance are also taxable, although the first $3,000 is excluded deductible.

Moving expenses, in cases where students move more than 40 kilometers to get closer to their place of study, are also deductible from scholarship income. These moving expenses can include travel costs, meals as well as lodging certain expenses during the trip and for a short period immediately after.

RESP revenue
RESPs provide an excellent tax planning and income splitting strategy. Students who use the savings from their parents RESPs to fund their education are taxed on the income portion, but not on the capital. RESP money can also be used to fund full-time education outside of Canada.

Tuition fees
The most obvious tax issue that affects students is related to tuition fees paid to qualified institutions at the post-secondary level. Tuition fees generate a non-refundable 16% tax credit that can be claimed by the student.

The legislation defines what constitutes tuition fees broadly beyond traditional academic fees. They also include library fees, mandatory computer services, the cost of books included in correspondence course fees, as well as supplementary fees such as athletic and health services fees.

If your employer pays your tuition fees, then these are considered a taxable benefit and will be added onto your T-4 slip.

Education credit
Both full and part-time students benefit from a federal education tax credit. For full-time students the amount is $64 ($400 x 16%) for each month that the student attended a qualifying educational institution. The credit for part-time students $19.20 ($120.00 x 16%) per month.

Students who do not take advantage of tuition or education credits can carry forward any unused amounts to a later year.

Student loans
While student loan payments do not qualify for a tax credit, the interest on those loans does. This credit can be claimed in the year the interest was paid or in any of the five subsequent years.

To be eligible, the student loan must be issued under the Canada Student Loans Act or similar provincial legislation.

Childcare
Students in qualifying programs with children under the age of 16 may deduct child-care expenses.

Going back to school?
In this day and age many people are going back to school after several years in the workforce to perfect their skill sets, or to pursue an advanced degree.

If you are thinking about doing so, one excellent tax planning opportunity is to contribute the maximum amount to your RRSP each year while you are working. Then, when you return to school, you can withdraw the amounts at a far lower tax rate, and can use the money to fund your course fees and living expenses while you study.

For more information:

Scholarships, bursaries and financial assistance:
http://www.ccra-adrc.gc.ca/E/pub/tp/it75r4/README.html
Tuition fees:
http://www.ccra-adrc.gc.ca/E/pub/tp/it516r2/it516r2-e.html
Education tax credit:
http://www.ccra-adrc.gc.ca/E/pub/tp/it515r2/README.html
Registered Education Savings Plan:
http://www.ccra-adrc.gc.ca/E/pub/tp/ic93-3r/README.html

-- Posted April 19th, 2004

Peter Diekmeyer is the Montreal Gazette's management columnist. He can be reached at: peter@peterdiekmeyer.com

-30-