If you are attending school this fall, take some time to learn the rules of financing student.
Maroney on Money for August 24, 1997
When I was a student, summer ended on about August 1st. That’s right around the time the first back to school flier appeared leading me to believe that all was lost. Now it’s even worse with hipsters, stretchy pants and bell bottoms ever-present to remind me that I’ve been away from the halls of academia for longer than I can remember.
Of course with a head bigger than the heels on my platform boots, I knew it all back then. The reality was, I didn’t know much. Especially when it came to student financing and income tax. Unfortunately, I wasn’t alone. For many students, a little knowledge of student financing and how income tax affects them (and their parents) would go a long way.
Consider financing the cost of an education. If you worked as an employee during the summer, it may interest you to know that your income is taxable with only limited deductions to claim as an offset. If you were the industrious type who earned self-employment income, you’ll find more latitude to claim expenses to reduce the taxable earnings you received.
Scholarly types will be disappointed to learn that all that brain power has also created taxable income against which expenses cannot be claimed. The only saving grace is that the first $500 is tax-free.
The “I’ll do it myself” crowd will be happy to know that student loans are not taxable but the interest paid on such loans cannot be claimed as an income deduction.
Finally, those withdrawing money from an RRSP or an RESP will find that all amounts received must be included in income. RRSP withdrawals come with an added hitch in that a portion of the amount withdrawn (usually 10%) must be withheld and remitted as an advance income tax payment.
And the fleecing doesn’t stop there. The cost of books, school supplies, student association fees and parking are all expenses paid with after-tax dollars. In other words, don’t even think about claiming these expenses as a deduction. If you left your parent’s nest in the process, you’ll want to add rent to the list.
But all is not lost. Tuition fees and certain ancillary fees (e.g., library fees, lab fees and computer service fees) can actually be claimed as a tax credit. There is also a special education credit available that is equal to $150 ($200 for 1998) for each month of full-time attendance.
If you find yourself unable to use these credits because your income is too low, you’ll want to consider transferring the unclaimed amount to a supporting spouse (including common-law), parent or grandparent. Unfortunately, the maximum amount that can be transferred is capped at $5,000.
New for 1997, if there is no other supporting person who can make use of your tuition/education credits the unclaimed amount can be carried forward to a subsequent year.
If you moved to attend your chosen school, you’ll want to get out your tape measure. Expenses incurred during a move at least 40 kilometres closer to school can be deducted, albeit only against income earned subsequent to the move. Expenses so claimed cannot exceed your income earned while at your new location and any excess can be carried forward for possible deduction in the following year.
Recognizing that children can hinder the learning process (academic, that is), the government also provides an opportunity to claim a deduction for child care expenses. A claim can be made by the parent (if single or both parents are in school) or by the working spouse in a two parent family where one spouse is in full-time attendance. The amount that can be claimed is limited to $150 per week for children 6 and under and $90 per week for ages 7 to 15. Presumably, the difference is designed to reflect the cost of diapers.
In any event, if you’re attending school this fall, take some time to learn the rules. You’re not likely to regret it.
Jim Maroney is a chartered accountant with Andrews, Brown, Maroney in Maple Ridge.
|
