Q: Currently, I have a son attending university. He worked during the summer and earned approximately $3,000. Is it necessary for him to file a tax return and are there any new tax breaks for him, or my husband and I?
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A: Post-secondary educational has become a pre-requisite for most well-paying jobs. The days of completing a high-school diploma and getting a job that pays for the economic needs of an average Canadian family may have gone the way of the carrier pigeon. Parents must plan and save for the cost of a child’s post-secondary education as early as the birth of the child. Voila! The birth of the Registered Education Saving Plans for such an event. It’s a very competitive world and every parent desires nothing less but to provide the best opportunities for their child.
Last year’s federal budget introduced several changes that affect all students.
Textbook tax credit (New): For 2006, students may claim a non-refundable tax credit for the cost of textbooks. Students may claim $65 for each month of full-time enrolment and $20 for part-time studies. If the student is unable to utilize the tax credit, the amounts can be transferred to parents or carried forward, similar to tuition credits.
Scholarship, Fellowship and Bursary Income (New): Income received from these sources will be fully exempt (prior year’s — first $3,000 income were exempt) provided they are enrolled in a program that they are entitled to claim an education credit.
Public Transit (New): In efforts by our federal government to increase the use of public transit introduced the public transit credit. The cost of monthly or longer duration public transit passes can be claimed on Schedule 1, line 364. Parents with students under 19 years old may have an option to claim all the amounts on one tax return.
An individual that does not have taxes payable is not obligated to file a tax return.
Individuals must file a tax return if, you:
- have taxes payable;
- have self-employment income in excess of $3,500 and must pay CPP, or your spouse is entitled to the Child Tax Benefit;
- have disposed of capital property in the year, regardless of gain or loss;
- must repay OAS or EI;
- must repay HBP or LLP RRSP;
- received a demand letter from CRA for filing.
However, students and/or their parents could be missing some tax benefits for not filing. Students can:
- accumulate RRSP room if they file a tax return;
- can carry forward unused tuition, education and textbook credits;
- transfer up to $5,000 of above credits to parents;
- transfer public transit credit to parents.
The benefits may more than outweigh the minimal cost for filing a student’s tax return.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext.304. Any questions to Money Matters should be e-mailed to email@example.com.