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Question:

Provide a comprehensive tax guide for students, providing them with advice and instruction on how to minimize their tax burden while setting them up to meet likely personal financial goals.
 
 

Answer:

Tax filing is a vital issue faced by Canadian students as they are not aware of the tax provisions and its impact. Being a student, instead of relying on parents for tax filing, they are required to take a proactive approach towards their tax obligations. In accordance with the study of Butrica (2015), irrespective of their age or income, they are required to file tax return in order to attain various tax benefits[1].

According to the Canadian tax law; students have legal obligations to file their tax return if they satisfy any one of the following situations:

  • They are required to pay tax for the year
  • They have not made repayment of all amounts withdrawn from RRSP (registered retirement savings plan) belong to lifelong learning plan
  • They are required to make contribution in CPP (Canada Pension Plan)
  • Students have received advance payments related to working income tax benefit (WITB)

If one of the above described aspects is satisfied, then return can be filed by students by making use of NETFILE or EFILE or through the paper return. In the option of EFILE, the service provider can complete and file the return on behalf of the student in against of charging a fee. On the other hand, in the option of NETFILE, the student has to complete and file their tax return by making use of web application or tax preparation software[2]. Students are recommended to make use of NETFILE as it is easy and cost savvy process because generally, they do not have complex tax transactions.

By considering the tax norms of Canada; usually, the due date for filing tax is on or before 30th April of the following year. In case if the student files their return after the due date, then in such situation their credits and tax benefits (such as Canada child tax benefit payments and HST/GST credits) will be delayed[3]. These advantages are inclusive of payments certain from the territorial or provincial program. Along with this; they will be liable to pay the penalty and interest charges for late filing.

 


Provisions of Canadian taxation provides various benefits to students through which effective financial planning can be done to save taxes by making use of available credits and allowable expenses. Most of the student do part time jobs to finance their daily expenses and take a student loan for higher studies[4]. With this aspect, they are entitled to take benefit of following credits and allowable expenses:

  • Credit on textbooks ($65 for full time and $20 for part time students on monthly basis)
  • Interest paid on student loans
  • Eligible tuition fees ($400 for full time and $120 for part time students on monthly basis)
  • Qualified moving expenses (if distance of Institute and residence is at least 40 kilometres and this can be used against any income earned while studying that particular course or against summer earnings)[5]
  • Child care charges
  • Expenditure of public transit
  • Credit of HST/GST (at least must have age of 19)

Canadian students are also entitled to take an exemption for scholarships, fellowships and endowments.

Study of Becker (2015) shows that student is always required to file their tax return irrespective of their legal obligation as it will assist them in making a claim for their tax credits, benefits and deduction to which they are entitled. They are also recommended not to get engaged of spending their tax refunds on items which are not affordable for them[6]. Instead of this, they can prioritise their objectives and focus on repayment of student loans or credit cards, and amount remaining amount must be reinvested for future returns. For qualifying this credit and expenses, the student must retain their documents. In addition to this, if the student does not have sufficient income to make use of this credits then up to $5,000 can be claimed by their partners or supporting parent or grandparent. Further, the remaining amount of credit can be carried forward for the next future year.

As per the viewpoint of Malcolmson (2016), students generally consolidate their debt in order to get attractive interest rate however it is not a good idea as it will restrict students from taking credit for interest on a student loan[7]. Thus, this kind of transaction should be avoided to reduce the tax burden. It is because; income tax provisions of Canada is particular as interest will be allowable expenses for credit only if it is received under Canada Student Financial Assistance Act or Canada Student Loans Act or any other similar qualified financial institution

 

References

Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions. Kluwer Law International, 2015.

Butrica, Barbara A. "A Review of Children’s Savings Accounts." (2015).

Lewis, Melinda, and William Elliott III. "Examining the Canadian Education Savings Program and its implications for Child Savings Account (CSA) Policy." Lawrence, KS: Assets and Education Initiative (2014).

Malcolmson, Patrick, et al. The Canadian regime: An introduction to parliamentary government in Canada. University of Toronto Press, 2016.

Malcolmson, Patrick, et al. The Canadian regime: An introduction to parliamentary government in Canada. University of Toronto Press, 2016.

Ssewamala, Fred M. "Optimizing the “demographic dividend” in young developing countries: The role of contractual savings and insurance for financing education." International journal of social welfare 24.3 (2015): 248-262.

Vossensteyn, Johan J. "Student financing and access: an international comparative perspective." (2013).

Butrica, Barbara A. "A Review of Children’s Savings Accounts." (2015).

Malcolmson, Patrick, et al. The Canadian regime: An introduction to parliamentary government in Canada. University of Toronto Press, 2016.

Lewis, Melinda, and William Elliott III. "Examining the Canadian Education Savings Program and its implications for Child Savings Account (CSA) Policy." Lawrence, KS: Assets and Education Initiative (2014).

Ssewamala, Fred M. "Optimizing the “demographic dividend” in young developing countries: The role of contractual savings and insurance for financing education." International journal of social welfare 24.3 (2015): 248-262.

Vossensteyn, Johan J. "Student financing and access: an international comparative perspective.” (2013).

Becker, Johannes, E. Reimer, and A. Rust. Klaus Vogel on Double Taxation Conventions. Kluwer Law International, 2015.

Malcolmson, Patrick, et al. The Canadian regime: An introduction to parliamentary government in Canada. University of Toronto Press, 2016.

OR

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