If you have kids or grandkids at the postsecondary level, you should both be aware of planning ideas and opportunities that can result in money in your pocket, or theirs. I want to share 10 ideas today:
1. Claim tuition and education credits.
A student is generally entitled to a tax credit for tuition paid, plus an education credit based on $400 a month of full-time ($120 for part-time) attendance in school.
If she doesn't need the credits to reduce her taxes to nil, she can transfer up to $5,000 of these costs to a parent, grandparent or supporting spouse, or carry them forward for use in a later year.
2. Claim textbook and ancillary costs.
In addition to tuition and education credits, a student can claim a credit for books, student fees, parking and equipment. The credit is based on $65 a month for full-time ($20 a month for part-time) attendance in postsecondary school.
3. Claim an exemption for scholarships, fellowships and bursaries.
A student eligible for the full-time education credit and who receives postsecondary scholarships, fellowships or bursaries is generally exempt on those amounts required to support the student in the program. Go to cra-arc.gc.ca and look up instructions for Line 130 of your tax return for more details.
4. Claim student loan interest.
If the student receives a qualifying loan under the Canada Student Loans Act or similar provincial legislation, he should be entitled to a tax credit for interest on the loan. He should receive an official slip to support the claim.
5. Claim moving expenses.
A student can claim moving expenses if the move to school, or home again, is at least 40 kilometres.
He'll have to earn income (which can include taxable research grants or other awards) in the new location to claim the expenses. Holding down a part-time job while at school can create the income needed to deduct the costs of moving to school.
6. Claim public transit costs.
A student may be able to claim a tax credit for the costs of public transit to get to and from school. The cost of monthly (or longer) transit passes for travel within Canada can be claimed.
These passes must permit unlimited travel on local buses, streetcars, subways, commuter trains or buses, and local ferries. Passes of shorter duration can be claimed if certain conditions are met.
7. Claim child-care costs.
A student (or her spouse) may be entitled to claim a deduction for child-care costs where at least one spouse attends school full- or part-time.
8. Don't consolidate student debt.
Many students graduate with various types of debt (credit cards, student loans, car loans, etc.) and often roll them into one single loan payment at a more attractive interest rate. Generally, it's a bad idea to consolidate student loans that qualify for the student loan interest credit. You'll lose the credit by consolidating.
9. Consider the Lifelong Learning Plan (LLP).
If you're an RRSP owner, and a resident of Canada, you can generally withdraw funds from your RRSP on a tax-free basis for full-time education for you, or your spouse or common-law partner (but not the kids – sorry). You can withdraw up to $10,000 a year for up to four years, but to a maximum of $20,000 in total. After you've withdrawn $20,000, you have the option of repaying your RRSP and then making further withdrawals. Failure to repay the amounts in accordance with the CRA's schedule can mean paying tax on the withdrawals.
10. File a tax return.
Although a student may not be required to file a tax return if she doesn't have tax to pay, it makes good sense to file anyway if she has earned any income at all. The reason? She'll create RRSP contribution room this way (for use later when she's earning an income), and filing a tax return could entitle your child to a GST or HST credit worth about $268 in cash once she's 19.
Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books.