Lots of students may believe they don’t need to file a return because they don’t owe any money. However, students may very well be leaving money on the table without filing. What student couldn’t use a few extra dollars? Last year I asked a student in an elevator if he had filed his taxes yet. He said he had never filed. I filed 4 years of returns for him and was ecstatic to tell him he would be receiving $6,000 in free money and would also be saving some significant future tax when he graduated and earned employment or self-employment income. This might be an extraordinary case, but I want to motivate all students to file returns as soon as they turn 18. Students may not make enough income to owe income tax, but it’s still worthwhile to file a return for many different reasons including – FREE MONEY (!)
A good lesson for students is NEVER TURN DOWN FREE MONEY FROM THE GOVERNMENT
Here’s an updated list for 2018 tax returns of the top SMART reasons why students should be filing returns every year after they turn 18 regardless of how small their income is:
- Tax Refunds are possible for anyone who gets a T4 slip if tax has been deducted, given the personal exemption level of over $11,500. If no tax has been deducted you are not in a position to have any tax refunded but keep reading because it’s still worthwhile to file.
- Tuition tax credits for studies at a post secondary institution can be claimed on a student’s tax return based on a receipt issued by the designated institution that the student attended. Students must be over the age of 16 and the institution must be certified by Employment and Social Development Canada (ESDC) with fees paid exceeding $100.00. Typically, this form T2202A or TL11A for a University outside of Canada needs to be downloaded from the school portal as it will not be mailed. If a student doesn’t need to use the entire tuition credit to get their income tax to zero, up to a maximum of $5,000 can be transferred to a supporting parent or spouse. If you are a parent hoping to transfer some of that tuition to your own return; your student needs to file their return and designate up to the $5,000 transfer on their return and sign the back of their T2202A slip to complete the transfer. It’s a commonly reviewed credit by CRA so make sure all the paperwork is in place. Any and all tuition not used or not transferred to a supporting person can be carried forward and used when the student has income to reduce tax payable. Never underestimate the importance of reporting all your tuition and the tax you may save in your first year or so of making income after finishing school! I’ve seen tuition carry forwards especially for foreign students in particular, in the neighbourhood of $100,000 that’s a lot of future income tax refunds! Sadly, the federal education and textbook tax credits were eliminated in 2017. I can not give you a good reason why. No clue. Not happy about that.
- Examination fees for licensing or certification paid to an educational institution, professional association, provincial ministry or or similar to take an occupational, trade or professional examination to obtain certification may also be eligible for the tuition tax credit. Receipts should be provided to substantiate eligible exam fees.
- Interest on qualifying student loans is also eligible for a non-refundable tax credit by students. You can’t transfer this credit to anyone else, but if you do not pay taxes for the year the interest is paid, any unused amount can be carried forward by the student for 5 years to be offset against future income.
- Quarterly GST/HST Tax Credits (rebates) provide quarterly cash payments to low and middle income tax payers to help offset the costs of paying GST/HST on taxable purchases. That includes students in school which is a prime reason why students should start filing a return in the year they turn 18 in order to receive GST/HST rebates in the year they turn 19.
- Monthly Ontario Trillium Benefits are paid out to individuals with low or middle income who reside in Ontario and are over the age of 18 and that includes students. This credit is to help offset the cost of property taxes, rent and the sales tax on energy. The credits are funded by the Province of Ontario but administered by Canada Revenue Agency. Anyone over the age of 18 who rents, pays property tax or lives in a student residence in Ontario is eligible for the credit depending on their income. Anyone under the age of 18 but has a spouse or child can also apply for the Ontario Trillum Benefit. If the amount is less than $360 you will receive a lump sum. If the amount is over $360 and you opt in for monthly payments I would strongly suggest the student sign up for direct deposit. Monthly cheques can go missing or astray. Don’t lose free money! You can calculate the amount of credit you will receive here
- Climate Action Incentive or “Carbon Tax Credit” is new for 2018 returns. This is a refundable tax credit that can be claimed by those over the age of 18 who resided in Saskatchewan, Manitoba, Ontario or New Brunswick at the end of 2018. The credit is restricted to these 4 provinces do not have a provincial carbon program in place. For students it means a rebate of $154 if they live in Ontario but there is a 10% supplement for those living in small towns or rural communities.
- Students who are also parents need to file for 2 different reasons. Canada child benefit payments including the related provincial benefit payments will not be paid out without a return being filed. Also, note that child care expenses paid for someone to look after your child are deductible but the rule generally is for the lower income spouse to take the deduction. However, in the case of an individual who is the lower income spouse but enrolled in school, the higher income spouse is allowed to deduct child care expenses.
- Moving costs can be deducted from employment, self employment or income earned from a co-op placement. Many students neglect to take advantage of the deduction of moving costs when they are living away from home. If a student moved to be at least 40KM closer to school and works part time while away at school; moving costs can be claimed against that income. Similarly, when the students move back home to work say in the summer; moving costs can again be deducted. Moving costs not deducted can be carried forward.
- Earning RRSP contribution room and saving for retirement (and lowering taxes) maybe a distance away for many students but building up RRSP room now for use later is helpful and is based on filing and reporting income starting as soon as they start to earn income
These are just the basics. Speak with your accountant who may find other reasons for your student to file or call us for more information. I would also encourage students who have filed their first return to sign up for CRA’s My Account service which is an easy, fast and secure way to view their benefit and credit information, change their address, sign up for direct deposit and view the status of their filings, prior year returns and notices of assessments. Read more about CRA My Account here
