Financial educational articles
Tax management is an important aspect of personal finance because of its potential impact on your financial health. Diving through the complexities of the Canadian taxation system, students can find several dedicated benefits to relieve their tax owing. Knowing whether one is eligible for tax credits and deductions can be the difference between owing further tax payments or receiving a refund from the government. Students are a special group of individuals have special privileges to many different types of tax credits and deductions, which can benefit not only the student’s finances, but also supporters of the student. In this post, let us explore some of the available tax credits for students, where and how to use them.
Tuition credit – Utilizing your tuition to the limit
Paying tuition is part of being a student. It is always depressing when your bank account balance goes down after paying tuition, but you can recover some of it through the tax savings of the tuition credit.
The tuition credit is meant to save the student from paying excessive taxes on top of living expenses associated with being a student. It is the government’s way of relieving some financial burden of not only the student, but also their supporters (This will be discussed in the “Benefits” sections later in the post).
It does have some limitations. One being that the total of all fees paid to the one institution must be greater than $100 in order to be eligible for claim. Which means if one were to take extra courses at a different institution, the tuition is eligible for claim only if it exceeds $100. Also, if the tuition is paid by others such as training programs, employers, or employer of family member, will not be eligible for claim. Official tax receipt from the education institution is needed as proof so that tuition credit can be claimed.
Education credit – Tax reward for knowledge seekers
In addition to tuition credit, the government allows students to claim further tax reduction through what is called an education amount. This amount grants tax savings of $400 per month for full-time students and $120 per month for part-time students.
However, like the tuition credit, if the student receives allowances, benefits, or reimbursements from sources other than family members in regards to an education program, or cost of the courses will not be eligible for this amount.
Textbook credit – Lessening the “load” of your books
As long as students are eligible for the education credit, they can also claim textbook credit of $65 per month of full time students, and $20 per month for part time students. This is government’s way of making those $200+ textbooks look a bit cheaper. Since this credit depends on the individual’s eligibility of education credit, it follows the same restrictions.
Easy steps to apply for your credits
Taxation in general is a tedious task. Luckily, all the above credits all fit under in one form (Federal Schedule 11) and it is one of the easier ones to complete. Here, we will go through the form line by line. (here is a link for your reference: http://www.cra-arc.gc.ca/E/pbg/tf/5000-s11/README.html)
Line 1: If this is your first year of post secondary education, this line would be blank because you do not have accumulated unused tuition from previous terms. If this is not your first year of post secondary education, then you can refer back to previous year schedule 11 form and copy the amount from line 25. In cases where you did not claim any tuition before, refer to a tax specialist and see if you can report all unclaimed tuition together.
Line 2: This is where your current year tuition fees paid are reported. Note on the form it says “Eligible” tuition fees. This means it is the portion of tuition that is not paid or reimbursed by a third party (other than parents or guardian) and that it is paid to a qualifying institution or program. If you have obtained a tax receipt from the institution, the amount stated on the receipt can be directly transferred.
Line 3, 4, 5: The first two lines are used to calculate education and textbook amounts for part time students. Simply state the number of month studied as a part time student and multiplied by the stated factor to arrive at the result on the right side, add and transfer the result to the most right position on line 5.
Line 6, 7, 8: Same structure as line 3, 4, and 5 except it is designated for full time students.
Line 9: Add amounts from line 2, 5, and 8 to arrive at the total 2010 tuition, education, and textbook amounts.
Line 10: Add amounts from line 1 and 9 to arrive at total available tuition, education, and textbook amounts.
Line 11: This line requires the individual’s taxable income from line 260 of the tax return, once you have obtained that amount, simply transfer it to this line.
Line 12: To most students, this line is usually left blank. It requires the calculation of other non-refundable credits stated on schedule 1, which are usually empty. If you were working during the school term or have been on Co-op, then you will have to fill out the schedule 1, tally the results from line 1 to 19, and transfer the total to this line on schedule 11.
Line 13: The difference between line 11 and 12. Input the value “0” if the number is negative. This means that, if your taxable income is already lower than non-refundable credits, then the individual is not taxable (do not have to pay tax) and the tuition credit will not be able to further reduce taxes.
Line 14: Input the lesser value between line 1 and line 13.
Line 15: The difference between line 13 and 14.
Line 16: Input the less value between line 9 and 15. Note that if line 13 is 0, then line 15 will also be 0, which leads to line 16 being 0. If this is the case, then the tuition credit does not contribute to reducing tax because the individual is already not taxable.
Line 17: Add lines 14 and 16 to arrive at the total tuition, education, and textbook amounts. Once you obtained the result, transfer the amount to line 323 of the Schedule 1.
The main benefit of these credits is the ability to reduce tax obligations for students. It can also be transferred to supporting individual of the student and reduce their tax obligations as well. The credit transfer can save money for the supporting individual by increasing the amount of non-refundable credits on schedule 1 which ultimately reduces the Net Federal Tax. Although this option is great, it does have a limitation. The eligibility of the transfers, which states that the credit must be used to first reduce the student’s own taxes to 0 before the remainder can be transferred. In other words, if the student makes too much income from employment during school and requires all or most of the credit to reduce the income tax, then there would be less for transfer. Thus, not all of the tuition amounts are available for transfer if the student works. Even in the case where students do not work, the maximum tuition transfer is $5000 per year.
Now that we figured out the total tuition, education, and textbook credit as well as the benefits of transferring tuition, let us go through how to apply for credit transfer, continuing from line 17 of Schedule 11.
Line 18 to 20: These 3 lines are meant to calculate the total unused credit by the student, which can be transferred.
Line 21: Enter the amount from line 9. If this amount is more than 5000, then enter 5000
Line 22: Enter the amount from line 16.
Line 23: States the difference between line 21 and 22, which is the maximum transferable amount.
Line 24: Students may state the amount to be transferred on this line. The maximum transferable amount is stated on line 23, if the student wishes to transfer less than the maximum, then the student may state the amount willing to be transferred here.
Line 25: States the difference between line 20 and 24. This is the unused federal amount available to carry forward to a future year. This line acts as line 1 for next year’s schedule 11.
One final step in completing the tuition transfer is to notify the person to whom the credit is being transferred. Transfer the amount on line 24 of the student’s schedule 11 to line 324 of the transferee’s (the person receiving the transfer) schedule 1. And voila, you have completed the credit transfer.
Taxation is different in all provinces of Canada, and students are treated differently as well. Check up on your provincial taxation website and look for any provincial credits available. For residents of Ontario, there are provincial tuition, education, and textbook amounts that can be claimed. The form is very similar to the federal schedule 11 that you have just learned about. Complete the provincial form for more tax savings.
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