Reproduced from A Parent's Guide to Raising Money-Smart Kids by Robin Taub with permission from the Canadian Institute of Chartered Accountants © 2011.
Your kid may be one of the fortunate ones, that is, they may know they can count on you to pay for their university education – which allows them the luxury of not working and gives them more time to focus on their studies during the school year. Or maybe your kid will be working part-time during the school year or full-time during the summer to help pay for university. If your kid did not work as a teenager, you may want to go back to Chapter 4 and read the sections entitled Their First “Real” Job and Helping Them Understand their Pay Cheque. This is also a good time to talk to them about the responsibility of filing a tax return.
Throughout high school, Emma Taylor worked part-time at the Gap with her friend Allison. After graduation, Emma went to university out of town. Allison’s family couldn’t afford to send her away to school, so she lived at home and went to university. She also needed to keep working to help pay her tuition. Allison debated the pros and cons of keeping her job at the Gap. On the one hand, she had a track record of good performance and she had a little seniority, plus she wouldn’t have to embark on a job search. On the other hand, as Emma pointed out, she might be limiting herself if she stayed. Prospective employers want people who have had experience from a variety of jobs in different fields. Allison agreed that different work experience would be good – she knew she didn’t want to work at her Gap job forever – so she decided to look for a more challenging, better paying job in her area of interest, using the tips outlined in Chapter 4. She ended up finding a position at the university, which employs a lot of students in different administrative and teaching-related positions.
Why file a tax return?
Some kids may not see the point of filing a tax return, especially if they haven’t made very much money. If you are a resident of Canada for all or part of a tax year, you must file a tax return if you either owe tax or you think you may be entitled to a refund.
Generally, you must file your return and pay your taxes by April 30th of the year following the tax year. As we discussed in Chapter 4, if your kid’s taxable income falls under the Basic Personal Amount (of $10,527 in 2011), then it is unlikely that they will owe tax.
Tax breaks for students
Students are entitled to deduct some of the costs associated with their post-secondary studies. These deductions take the form of special tax credits that can be used to reduce any income taxes they owe.
There are rules that set out how much can be claimed and (of course!) forms have to be completed. You can learn more by visiting the Canada Revenue Agency’s website.
Your child must claim these amounts first, even if you are the one paying. But if your child doesn’t need these credits to reduce his or her income (e.g., because it is already below the Basic Personal Amount), then they can be transferred to your return to reduce your taxes (or to a grandparent). They can also be carried forward indefinitely and claimed in any future year.
If your child is moving to attend full-time post-secondary studies, they may be able to claim their moving expenses if:
• they receive scholarships and bursaries while at school that are included in their income
• they move at least 40 kilometres closer to attend school.
Students often take public transit and there is a tax credit available for anyone (not just students) who purchases a public transit pass. It is called the Public Transit Amount and covers monthly or annual passes (not individual tickets) for unlimited travel within Canada on local buses, streetcars, subways, commuter trains or buses, and local ferries. Remind your child to keep receipts or expired passes as proof of this claim.
Scholarships and bursaries
If your child receives a scholarship, fellowship or bursary, the income will not be subject to tax if they qualify to claim an “education amount” on their tax return.
• Education amount
They have to be enrolled in a “qualifying educational program” at a “designated educational institution” and must be enrolled full-time (or part-time due to a disability or mental or physical impairment). Qualifying programs must run for at least three consecutive weeks and include at least ten hours of instruction or work per week. Generally, Canadian universities, colleges and other post-secondary institutions qualify, as do universities outside Canada under certain circumstances.
Some young adults decide to work full-time after high school, which means they are in a position to begin a savings program or contribute more to a savings program which they started earlier. On the other hand, if your child is attending university or college, these are likely to be spending, not saving, years. She may have some short-term savings goals from time to time, but if she is earning any money, most of it is probably being spent on university tuition, books and living costs. Your kid probably has a savings and/or a chequing account for managing day-to-day spending and, if you haven’t done so already, review the basic mechanics of managing a bank account that we covered in Chapters 3 and 4. It is also worth the time to investigate whether your bank offers a special account for post-secondary students. If they do, your child may be entitled to services at discounted prices. Because you have already introduced your kid to the topic of income tax, take this opportunity to discuss using tax-advantaged savings vehicles as a way to minimize taxes.
Reproduced from A Parent's Guide to Raising Money-Smart Kids by Robin Taub with permission from the Canadian Institute of Chartered Accountants © 2011 (to order, go to CAstore.ca/parentsguide).