My son experienced his first day as a high school student this week. I'm not sure I'm going to like this experience. He's already talking about the tattoos so many kids at school are getting these days. I had a dream that he wanted to have his teeth sharpened, tongue forked, bumps implanted on his forehead and scales tattooed on his face. Don't cringe – it's been done before.
Why can't kids take an interest in normal things like tax planning? Forget the tattoos. Let's sit around the kitchen table on Friday nights and talk about tax ideas. My parents didn't do this for me. You can imagine the disadvantages and scars I faced as a result. Here's a list of tax strategies to chat about at the dinner table with the students in your life:
1. File a tax return
As a general rule there's no requirement to file a tax return if your child doesn't have any tax to pay. Not smart. If your child earned any income at all he should file a tax return because he'll create registered retirement savings plan contribution room this way. Later, when he's earning an income, he can make deductible contributions to his RRSP to save tax. Further, filing a tax return could entitle your child to a GST or HST credit worth about $260 in cash once he's 19 years of age.
2. Claim moving expenses
Your child can claim moving expenses if the move to school, or home again, is at least 40 kilometres. She'll have to earn income in the new location to claim the expenses, which can include taxable research grants or other awards. Of course, working part-time at school or in the summer can also create the income needed to deduct moving expenses.
3. Claim tuition and education credits
Your child can claim a tax credit for tuition and an education amount based on $400 a month of full-time ($120 for part-time) attendance in school. If he doesn't need the credits to reduce his taxes to nil, he can transfer up to $5,000 of these costs to a parent, grandparent or supporting spouse, or carry them forward for use in a later year. Be aware that claiming tuition and education amounts for certain online foreign educational institutions has been problematic recently. You might still qualify for credits, but speak to a tax pro first.
4. Claim textbook and ancillary costs
A credit for books, student fees, parking and equipment can be claimed. The credit is based on $65 a month for full-time ($20 a month for part-time) attendance in post-secondary school.
5. Claim student loan interest
If your child borrows money by way of qualifying student loans make sure she claims a tax credit for the interest. The loan must be made under the Canada Student Loans Act or similar provincial legislation to qualify, and an official Canada Revenue Agency or provincial slip should be issued to support the claim.
6. Claim public transit costs
A tax credit is available for the costs of public transit to get to and from school. The cost of monthly (or longer) transit passes for travel within Canada can be claimed. These passes must permit unlimited travel on local buses, streetcars, subways, commuter trains or buses, and local ferries. Passes of shorter duration can be claimed if certain conditions are met.
7. Claim child care costs
A student (or his spouse) may be entitled to claim a deduction for child care costs where at least one spouse attends school full- or part-time.
8. Don't consolidate student debt
It's a popular strategy to take several different debts and roll them into one single loan payment at a more attractive interest rate. This type of debt consolidation can make sense – but not for student debt that will otherwise qualify for the student loan interest credit. You'll lose that credit if you consolidate.
9. Consider the Lifelong Learning Plan (LLP)
If you are an RRSP owner, and a resident of Canada, you can generally participate in the LLP to withdraw funds from your RRSPs on a tax-free basis for full-time education for you, or your spouse or common-law partner (but not your children). You can withdraw up to $10,000 a year for up to four years, but to a maximum of $20,000 in total. After you've withdrawn $20,000, you have the option of repaying your RRSP and then making further withdrawals. Failure to repay the amounts in accordance with CRA's schedule can mean paying tax on the withdrawals.
Tim Cestnick