The last few weeks of summer are usually all about back-to-school shopping: pencils, notebooks, and first-day-of-school outfit. For those older kids heading off to university, it's about furniture and getting them settled in away from home. This year, it seems like these responsibilities been overshadowed by uncertainty about sending our kids to school or managing virtual learning from home, all due to our COVID reality. So why even bother about taxes when you have so many other stressful things to manage? Well, COVID has also taken a toll on everyone financially, so every dollar accounts. By keeping yourself well read on the various tax credits and deductions available for students, you can ensure that this type of homework actually puts money back into your hands.
COVID RELIEF MEASURES
The government has also recognized that students themselves have been affected economically as a result of COVID. Per the government's website, it was noted that in March 2020, the number of post-secondary working students, aged 15-29, dropped by 28 per cent from February 2020.
As a result, specific COVID relief measures were introduced to assist students:
- ☛ Canada Emergency Student Benefit (CESB): The CESB
provides financial support to postsecondary students, and recent
post-secondary and high school graduates who are unable to find
work due to COVID-19 (NOTE: the CESB is for students who do not
qualify for the Canada Emergency Response Benefit (CERB) or
Employment Insurance (EI)). From May to August 2020, the CESB
provides a payment to eligible students of:
- $1,250 for each 4 week period; or
- $2,000 for each 4-week period if you have a disability or a
The final eligibility period for the CESB is August 2 to August 29, 2020 (all applications for the CESB must be submitted before September 30, 2020).
The CESB is still available if you are still working, but you cannot earn more than $1,000 during the 4-week period you are applying for. NOTE: the CESB will be included in the student's taxable income for the year.
- Canada Student Service Grant (CSSG): Unlike CESB, CSSG is a one-time payment that students can earn by volunteering for COVID-19 response programs. They can receive up to $5,000 of taxable income for 500 hours of volunteer work, which will help them gain paid work experience.
- Canada Student Loans Program (CSLP): This provides financial
assistance in the form of grants (this existed prior to COVID). As
a result of COVID, the government has doubled the grant and eased
the eligibility criteria as part of the COVID-19 support. A single
full-time student can get a grant of up to $6,000, while a student
with a dependent can get an extra $3,200 in the 2020-21 academic
year (note: this grant is not subject to tax and does not need to
Students also were granted a moratorium for the federal portion of all student loans – all loan repayments and interest payments were automatically suspended until September 30, 2020.
For the 2020-2021 school year, the weekly maximum loan limit will increase from $210 to $350.
- Exemption from student and spousal contribution: For the 2020-2021 school year, students will not be required to make their fixed student contribution; no spousal contribution would be required either. This will ensure that more students with need can qualify for more financial support.
- Goods and Services Tax (GST) tax credit: The GST tax credit is a quarterly tax-free payment the CRA pays to low and modest-income families. As part of the COVID relief measures, the CRA has doubled this benefit for one quarter. The average additional benefit will be close to $400 for a single individual (if you are eligible, you will automatically receive this payment).
Prior to 2011, Canadian students in full-time attendance at a university outside of Canada were eligible for the Tuition Tax Credit, the Education Tax Credit and the Textbook Tax Credit, if they were enrolled in a course lasting at least 13 consecutive weeks and leading to a degree. Similarly, a Canadian student can currently receive Educational Assistance Payments ("EAPs") from a Registered Education Savings Plan for enrolment at an educational institution outside Canada that provides courses at a post-secondary school level provided the student is enrolled in a course of not less than 13 consecutive weeks.
However, in light of the fact that many programs at foreign universities are based on semesters shorter than 13 weeks, changes to the Tax Act reduced the minimum course-duration requirement from 13 to three consecutive weeks. The 13-consecutive-week requirement for EAP purposes was also reduced to three consecutive weeks when the student is enrolled at a university in a fulltime course. This is only relevant for the tuition tax credit.
Credit for Interest on Student Loans
A student may also claim a personal tax credit equal to the lowest tax rate (15 per cent for 2020) multiplied by the amount of interest paid in a year, or any of the previous five years, on a loan made under either the Canada Student Loans Act, Canada Student Financial Assistance Act, Apprentice Loans Act or a similar provincial or territorial program to students at the post-secondary school level. Unlike the tuition credit, this credit is not transferable; the claim is available only to the person to whom the loan was made or who legally owes interest on the loan. However, the student may pay the interest or a person related to the student.
Note that the credit applies to interest only and not repayment of the principal. Moreover, it does not apply to interest accrued but not paid or to any forgiven interest. Institutions administrating the student loans will usually provide students with statements indicating the eligible interest payments.
The receipt of the student loans itself is not taxable – i.e., because it is a loan rather than an income item.
Filing a Tax Return
In order to claim the credits discussed above, the student will need to file a tax return. Although this may seem like more homework for your child (or, more likely, you) there are several other advantages which may be available by filing a tax return, including the following:
- Tax Refund: A student can be entitled to a refund of tax that was withheld by an employer on a summer job. However, this money is not available unless a return is filed.
- Government Cash: Older students may be entitled to receive cash
from the government. Although students will usually not actually
owe any tax because of the tax credits and deductions available, a
number of credits are linked to income, such as GST and provincial
tax credits. For example, if you are 19 or over you may be eligible
for the annual GST/HST Credit, which is paid in quarterly
installments. You apply for it by filing a tax return and
completing the GST/HST application section of the return.
Also, some provinces provide tax credits for low-income taxpayers, which are paid in the form of a tax refund. Check out what is offered in your province.
- RRSP Contributions: Filing a tax return can establish RRSP "contribution room" – i.e. the ability to make future contributions to an RRSP. The student does not have to contribute now, since any unused contribution room can be carried forward indefinitely.
- Moving Expenses: If students leave home to attend university, they can deduct expenses to move to the school if they have income from scholarships or a part-time job at that location. Students can deduct moving expenses to return home against income from summer employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.