Attending post-secondary is a large investment for many students. Although it can be quite expensive to attend, students enroll out of hopes that the fields they get into will eventually pay for any debt they may accumulate and fund their dream lifestyle. Those with post-secondary degrees tend to see more income and higher salaries over their lifetime. However, students still want to save as much as they can to improve their future.
Nevertheless, tuition is not the only cost students need to consider. Educational material such as books, transportation, residence/rent, food, and other expenses are other factors that increase the financial burden. But it should be noted that students receive many tax advantages and deductions, so maximizing how you plan your taxes is important and having a knowledgable accountant by you side can to help guide you is even better.
Who needs Tax Planning?
Year end tax planning is an activity that we encourage all clients to undertake. It’s not just for business owners and investors, tax planning is important for self-employed individuals, students, as well as couples and families. It’s a great way to re-evaluate goals and finances, and set yourself up for the year ahead. Being prepared for tax season will also help limit any unexpected costs when you complete your tax returns.
3 Ways to Plan Your Taxes as a Student
Tax planning is a strategy that aims to increase tax efficiency by reducing liabilities and optimizing tax exemptions, credits, and deductions.
1. Tuition Tax Credit
Tax credits are a dollar-for-dollar reduction of the tax you pay on taxable income. The more tax credits you have, the more you can reduce your income tax. This is especially great if you are working while in school, you can offset your employment income with a portion of your tuition.
As the largest post-secondary expense, you can claim a 15% non-refundable credit for fees you pay at your institution that exceeds $10. This includes the following:
- Admission Fees
- Library Use Fees
- Lab Use Fees
- Exemption Fees
- Exam Fees
- Application Fees
- Confirmation Fees
- Membership fees associated with the program
- Charges for Certificate, Diploma, or Degree
- Mandatory Computer Service Fees
- Academic Fees
The exemption to this includes extracurriculars, medical expenses, parking, lodging, courses taken to get into the program of choice. Generally, anything that is not mandatory to complete the degree is not eligible for this tax credit. A T2202A will be issued by your educational institution with the listed fees.
2. Credit for Student Loan Interest Paid
For students who depend on loans to subsidize the cost of university or college, the interest paid on federally- or provincially government-sponsored programs can qualify for a tax credit. Generally, these loans do not require repayment until at least 6 months after graduation and loans are interest-free until after graduation. So, the tax credit can only be claimed during non-interest-free periods.
3. Payment from an RESP
The RESP subscriber (typically parents, grandparents, or guardians of a student) can add money to the savings plan tax-free. Students can withdraw the money to cover the cost of the education. Income earned in the plan and government grants paid out are taxable, and EAPs will be reported on a T4A slip.
Depending on your personal income, you may be taxed a little or none. It is best to withdraw the money before earning a sizable income to minimize your income taxes.
Other Ways to Save
- Moving Expenses – Eligible, full-time students who move at least 40km closer to the school can deduct their moving expenses for education against taxable scholarships, bursaries, and research grants.
- Scholarship exemptions – The first $500 of your scholarship is exemption from being considered ‘taxable income’.
- Canada Training Credit – A refundable tax credit for tuition and fees paid for courses taken in 2020 and later years to help working Canadians with the cost of training fees.
Interested in saving more during tax season as a student?
To ensure you are doing your year end tax planning correctly, it is best to use a professional tax accountant. Regularly keeping up with your income, expenses, and other financial needs is important to ensure you maximize your savings.
Soleimani Accounting is a license CPA accountant in Vancouver, specializing in providing financials and accounting services for clients in public, private, and non-profit sectors. From bookkeeping and accounting to tax, we are here to help you thrive through sound financial advice and assistance. Get in touch to book a free 30-minute consultation.