Back to University: Money and Tax Lessons for Your Students

When your kids leave for university or take on some other post-secondary educational endeavor, you want to do your best that they succeed both with their grades, taxes and money as they take on more adult responsibilities.

Help them understand how to manage credit and money as well as give them a solid background on their tax obligations and the deductions and credits that are available to them and to you.

Living at Home Not all students head off to live on campus. In fact, as costs of education and housing rise, increasing numbers of students and their parents are deciding it’s a lot less expensive to live at home and commute when possible. If you decide commuting is the best way to go, here are some tips. For the student: Spend lots of time on campus. It will help meet other students, make friends and become more familiar with the school. Join clubs or sports teams. This involvement is crucial, particularly in your freshman year. Pinch pennies. One of the main reasons you’re living at home is to save money. Don’t lose sight of this. For the parents: Be supportive. You and the student would probably prefer that he or she live on campus. Living at home may not be ideal, but it’s financially smart. Treat your student like an adult. This can help maintain a stable relationship and minimize conflict. Make sure your student makes an effort to meet other students and becomes involved with campus life.

Understanding Taxes

As your children assume more responsibility they may also be taking on jobs. You can help them understand their tax obligations and the credits and deductions that are available to them.

First, students — as well as their parents or other supporting adults — should have a clear understanding of what sorts of income is taxable. Of course money earned from a full-time or part-time job that exceeds the basic personal amount in a year is taxable.

Of course students may have other income sources, some of which is tax-exempt some not:

• Scholarships, fellowships, bursaries, and achievement prizes are tax-free as long as the students are enrolled in programs eligible for the education amount. Otherwise, only the first $500 is exempt.
• Money earned as a teaching assistant and research grants, on the other hand, are taxable. In the case of grants, students may deduct certain costs related to the research, such as travelling expenses, lodging and fees they may pay to assistants.

Reducing Tax Liability

Once you have the taxable earnings issue down, you’ll want to know how to lower those taxes. Here is a guide to the credits and deductions that can help you and your student lower your tax bills:

Tuition Credits. Full-time and part-time students can claim a federal tax credit on eligible tuition fees, which generally include all mandatory amounts charged by post-secondary institutions. The costs of room and board or student association fees are not eligible. Most territories and provinces offer similar tax credits. The textbook credit is being eliminated as ofeffective January 1, 2017. Unused  textbook credit amounts carried forward from years prior to 2017 will remain available.

Education Amount. On top of the tuition credit, students can claim an education amount of $400 a month for each month that they are enrolled full-time. Most territories and provinces also offer an education amount.

Students enrolled part-time may be entitled to an education amount of $120 a month. The program must last at least three consecutive weeks and involve a minimum of 12 hours of courses a month.

Students can claim the full $400 federal education amount if they can attend qualifying courses only part-time because of a mental or physical impairment and are eligible for the disability tax credit.

Textbook Credits. Students can claim a federal tax credit on the costs of post-secondary textbooks. The credit is based on $65 for each month the student qualifies for the full-time education amount and $20 for each month the student qualifies for the part-time education amount. Nunavut and Yukon also offer textbook credits.

Transferring Credits. Students who don’t claim tuition, education and textbook credits can either carry them forward indefinitely to use later or transfer as much as $5,000 in unused credits to a supporting person such as a spouse, parent or grandparent. Those individuals can claim the credits on their own tax returns. Transferred credits must be claimed in the year they were incurred. Provinces and territories also allow credit transfers.

Moving Expenses. Full-time students can deduct certain expenses for moving to and from school for each academic period — as well as moving to and from a summer job — if the distance is at least 40 kilometres. The deduction can be made only against employment income in the new location or against research grants. The tax break can be taken in the year of the move or the following year.

Transit Expenses. Students can claim a tax credit for the cost of transit passes with durations of a month or longer. Money spent on electronic payment cards and weekly passes are also eligible under certain conditions. Keep the receipts. Parents or spouses of students under the age of 19 can claim the credit.

Rent. Some provinces offer either refundable property tax credits for rent paid or a property tax refund. Consult with your adviser to see if your province offers property-related tax breaks.

Child-Care Costs. Students or spouses can claim a child-care deduction if at least one spouse attends school full-time or part-time.

Student Loan Interest. Credits are available for interest paid on qualifying student loans. Some provinces have eliminated interest on provincial student loans. Check with your province.

Besides taxes, your student should learn about managing credit. Here are some tips:

• Help your children select an appropriate card. Explain how having a credit card increases the risk they will make impulse purchases and try to persuade them to get a debit card instead. Help them analyze offers and compare interest rates, annual fees, grace periods, and penalties.
• Make sure your children, or grandchildren, understand that significant interest is charged if a balance isn’t paid in full each month. Explain late fees, “teaser” interest rates, annual fees, and credit ratings.
• Advise your students to use credit only for essential purchases such as books and car repairs and not for entertainment, electronics, and expensive clothes.
• Show your children how to compare receipts to credit card statements and tell them it should be done regularly.
• Warn your children to keep their cards secure to avoid unauthorized use and identity theft.

Keep in mind that this may be the first time your children will handle money without parental supervision. Help them out by developing a budget that takes into account all expenses, such as travel, food, entertainment, clothing, cell phone, computer costs, and medical expenses.

Ask the child to keep track of spending for a couple of weeks and then go over the budget to see if there are ways to cut expenses of if you forgot to factor in certain items.