Post-secondary students of any age are busy people! Between studies, exams and everyday life– it can become overwhelming to even think about taxes, let alone be familiar with all the ins and outs of the Income Tax Act. Keep reading for our advice for students and answers to three common questions about taxation.
DO STUDENTS NEED TO FILE TAX RETURNS?
The short answer: yes! All Canadians who earn income should file a tax return every year, even if they do not owe an amount to the Canada Revenue Agency (CRA). Filing a tax return means you could be eligible for a Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit. It also increases the allowable amount of future contributions to a Registered Retirement Savings Plan (RRSP). Additionally, becoming familiar with taxation as a student will prepare you for further obligations when you enter the professional world.
2. WHAT EXPENSES CAN STUDENTS CLAIM FOR TAX CREDIT?
Whether you are a student exclusively or you work in addition to your studies, there are numerous reasons to claim certain tax credits. The costs of child care, moving, public transit, textbooks and tuition can all be claimed as tax credit– up to a certain amount, as outlined by the CRA. There are also provisional “education amounts” that count towards credits for each month you were enrolled. Even if you did not earn enough in a year to use this credit, much of it can be carried forward indefinitely and it can even be transferred to a spouse to reduce their taxes.
3. SHOULD STUDENT DEBT BE CONSOLIDATED?
Once you have graduated, it may be very tempting to combine the debt you accumulated as a student into one payment at a more affordable interest rate. In fact, there is no shortage of financial institutions and lenders that have a variety of consolidation programs. The downside of these offers is that you will no longer be eligible to claim the interest paid on student loans as a tax credit. If you can afford to, it is almost always best to keep your student loan debt separate.
The above answers are only a summary of the many ways students can take advantage of Canadian tax rules and regulations. If you have any questions or concerns, whether you are a student or know one, contact or visit Liu & Associates today!