Taxes: Students at College and University
Taxes: Students at College and University
We frequently write on this topic but we continue to see parents and students (no surprise there – I remember my days at university) who have no clue about what is required or how to proceed. Most parents have never had to deal with this before. Let us start with the student.
Taxes Owing by a Student:
Actual cash receipts are provided for the payment of text books and tuition. Either the parent or student can get these but they are of NO USE for tax filing. You keep them. The only thing we need and the only thing that can be used for income tax is the official CRA tax receipt provided by the university or college. It is called a T2202. This form is made available by the institution on the student web site. They download and print their T2202. Now the decision is made as to whether any of the tuition is to be transferred to a parent or grandparent.
The T2202 Form for the Student’s Tax Return
The T2202 is used first and always on the student tax return. The student files a return whether they have income or not. The T2202 must FIRST go on their tax return (on Schedules S11 and On S11) before it can transfer to mom or dad. The schedules take the amount of tuition from T2202 and convert it to tax credits (Federal and Ontario) These tax credits are used – in combination with all other credits - to reduce the amount of tax payable.
Regardless of who paid the tuition the receipt does the most good transferred to *the higher income earner. Students should always file tax returns so that they get their GST credits and Trillium benefit for rent paid in Ontario.
Transferring or Carrying Over of Unused Credits
Once the S11 and ON S11 credits has been used to reduce tax payable on income earned by a student (if any) there may be an unused balance of credits to transfer and/or carry forward to next year. The transferable amount is limited to $5,000* for federal tax and an equivalent amount for Ontario tax. If there is any unused amount of credits after:
a. The student, and
b. The parental transfer
these unused amounts are carried forward to next year and CRA confirms the amount on the student’s notice of assessment (NOA). As always, the NOA is a vitally important document and must be provided with each year’s tax documents.
Rent information by way of signed rent receipt for the Trillium Benefit must include:
a. Address(es) of property(ies) rented in the tax year, and
b. Months rented per location, and
c. Total amount(s) paid, and
d. Name of Landlord/lady.
If the student is in residence in a property owned by the college or university the full benefit is not payable but we need to know this information.
Students can also claim moving expenses and transit costs.
Parent’s Role in Preparing Student Taxes
This is a ‘welcome to the real world’ moment for children. It is all dark and mysterious stuff and generally holds little interest for them. However, they must get the T2202 and there is nothing you can do except explain to them why this is essential. If this is being done retroactively for prior years then the student’s web account may be closed in which case older T2202s can usually be obtained on request from the Bursar’s office.
Transferring Unused Credits to the Parent
Parents must decide whether they want to have unused tuition credits in the current year transferred to them or not. The transfer can only happen in respect of years when the tuition was paid. EG a 2017 T2202 can only be used in a parental transfer for the parent’s 2017 taxes.
Any unused amounts are carried forward ONLY for the benefit of the student in 2018 or subsequent years. This concept lies at the heart of the program. When the student leaves school and starts work they will have many expenses and may have student loans and interest to pay. The carried forward tuition credits help reduce tax burdens so they will have higher disposable income for a year or two. Transfers to parents diminish the future year credits available to their child.
For a transfer to be effective, the available for transfer amount from the student’s S11 and ON S11 is to be added to the reverse of form T2202. The student writes the name of the transferee and their relationship to the child and signs the form, adding their printed name and SIN. The amounts from this form are transferred to the dependant schedule and increase the available tax credits of the parent/grandparent receiving the credit transfer.
*TAX TIP: Put the transfer on the parent with the higher income.
The parent can also claim allowable medical expenses of the student while they are in full-time education.
See: CRA – Students (Note: The textbook amount has been eliminated)
NOTE: Credits do not translate $ for $. e.g. Federal tax credits are multiplied by 15% so that a $5,000 federal tax credit is equivalent to a reduction in tax payable of $750.00
You can struggle with doing all this yourself or you can get professional help. If you think it’s expensive to hire a professional, wait until you hire an amateur.
Until next time,