There is life after school is finished - a bit of time and effort today could pay dividends after graduation day
Maroney on Money for April 25, 1999
Being a student is never easy – exams, assignments, reports, crowded classes, dropping courses, adding courses, no money, high tuition fees, parking, too much caffeine, too little sleep, macaroni for breakfast, lunch and dinner. Ah, those were the days. I’ve often thought I’d gladly go back but I suspect it’s just a case of false bravado.
But don’t despair, the news is not all bad. On the local scene, our provincial government has frozen tuition fees for past four years. Federally, the Canadian Opportunities Strategy, first introduced in the 1998 budget, is designed to reduce financial barriers and expand access to post-secondary education.
With little or no income to report, many students choose not to file an income tax in the mistaken belief that there is no reason for doing so – this gets a failing grade from me.
At the very least, any unmarried student who was at least 19 years of age in 1998 should file a tax return, even if they received absolutely no income during the year. By filing a nil 1998 tax return, students can expect to receive a GST credit in July and October of this year and January and April of the year 2000. At its maximum, this credit will amount to $199 during this period. Filing a return will also score low-income students a $50 basic sales tax credit courtesy of the provincial government.
All told, the simple act of filing a nil tax return can provide the student with $249 – enough money to pay for a textbook or two or a couple hundred boxes of macaroni dinner.
Many students work part-time or full-time during the summer. Often these students will not be subject to income tax because their taxable income for the year is less than the basic personal credit. These students may be able to recover part, or all, of the income tax and other withholdings taken off their paycheques.
In addition, by filing a tax return, they will earn RRSP contribution room available for use in future years. Earning RRSP contribution room will be of little significance during a student’s school years but it could provide some much needed tax shelter during the income-earning years.
Starting in 1998, students will be able to deduct interest paid in the year on student loans. Only the student to whom the loan was made or who has the legal obligation to repay the debt can claim this deduction. Notice that the student does not have to be the one who actually paid the interest – payment by a kind relative (mom and dad, for example) will be sufficient to provide the student with a deduction.
It is also worthwhile to note that this is a discretionary deduction – if the student doesn’t need the deduction to reduce the tax he or she has to pay, then don’t claim it. The student can still report the interest paid for the year but not claim it as a deduction. There is a provision that allows unclaimed student loan interest to be carried forward for up to five years.
If the student isn’t taxable, then he or she should carry forward undeducted student loan interest for possible claim in the future when, hopefully, they have taxable income. Unfortunately, there is no government form to complete to carry forward student loan interest, so the student will have to keep track of this balance on their own.
Unused tuition and education credits can also be carried forward for use in a subsequent year. Or if mom and dad helped pay for the costs of schooling, consideration could (or should) be given to transferring these unused credits to them to recover part of their investment.
Amazing as it may sound, there are actually students who are in a position to contribute to an RRSP. If this includes you, make sure that you don’t claim the RRSP deduction unless it actually reduces the income tax you have to pay. If deducting your RRSP isn’t reducing your tax bill, then don’t claim the deduction and simply carry the undeducted amount forward for claim in a future year.
Having been there, I know that it is difficult for students to look beyond the next exam or assignment but there is life after school is finished – a bit of time and effort today could pay dividends after graduation day.
Jim Maroney is a chartered accountant with Andrews Brown Maroney in Maple Ridge.
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