With so much going on during back-to-school season, tax planning is usually not top of mind for post-secondary students. In fact, many students don’t even file tax returns until they graduate and land their first full-time job. However, the following are several reasons why students should begin filing tax returns when they start their post-secondary career.

Reasons to File Tax Returns as a Post-Secondary Student:

• Generate RRSP Contribution Room

If the student earns income from employment at any time during the year, filing a tax return will help generate RRSP contribution room, calculated as 18 percent of the prior year’s earned income. RRSP contributions are deductible for tax purposes and the deduction can be claimed either in the year of contribution or in a future year.

• Receive Tax-Free Benefits

The Canada Carbon Rebate (formerly known as the Climate Action Incentive Payment) is available to individuals aged 19 or older who are residents of either Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island or Saskatchewan. The rebate is meant to help individuals and families offset the cost of federal pollution pricing. Single eligible residents of Ontario who filed a 2023 tax return received a total of $560 over four quarterly payments.

The GST/HST credit is available to Canadian residents aged 19 or older and is intended to help families with low and modest incomes offset the GST or HST that they pay. The amount received varies based on the individuals or family’s net income. The maximum tax credit for single taxpayers for the 2023 tax year was $519.

• Claim Tuition Credits

Fees paid by students to post-secondary institutions are eligible to be claimed as a non-refundable tuition tax credit. Form T2202, which summarizes the eligible annual fees, is issued to students on an annual basis by educational institutions so that they can report the amounts on their income tax returns. If students do not have any taxes payable to offset the credit, they can transfer up to $5,000 to their spouse or common-law partner, or to their parent or grandparent. Alternatively, they can simply carry forward the unused amount to a future tax year.

• Claim Interest Paid on Student Loans

Interest paid on loans received under the Canada Student Loans Act, Canada Student Financial Assistance Act or the Apprentice Loans Act is an eligible deduction for tax purposes. If the student has no taxes payable, they can carry the amount forward up to five years.

Other Tax Planning Tips for Post-Secondary Students:

• Taxable Withdrawals from Registered Education Savings Plans (RESPs)

Withdrawals from RESPs which represent contributions that were made into the plan are not required to be included in taxable income (i.e. tax-free). Any other withdrawals from the plan, which include income, gains and the Canada Education Savings Grant are taxable and referred to as Educational Assistance Payments (EAPs). If the student has no or minimal income in the particular tax year, it’s advisable to take out EAPs so that it is offset by the student’s basic personal amount ($15,000 maximum in 2024) or other credits, such as the Federal tuition credit. Keep in mind that the EAP limit is $8,000 in the first 13 weeks of enrollment in a full-time program ($4,000 for a part-time program).

• Direct Savings into Registered Accounts

Whether it’s from their summer job or the tax-free benefits mentioned above, students can direct their savings into their choice of registered accounts, including RRSP, TFSA and the First-Home Savings Account (FHSA), which was introduced in 2023. The FHSA is an attractive option as it combines benefits of both the RRSP and the TFSA into one account. Contributions into the FHSA are deductible for tax purposes, similar to RRSPs, and withdrawals are tax-free, similar to TFSAs. Tax benefits aside, this account helps students get a head start on saving for their first home.

Talk to the team at First Avenue to learn more about the benefits and options available to you.