Archive for August, 2010

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TRANSFERRING SCHOOLS COSTS TO SUPPORTERS

Let’s face it. . .we all appreciated the support we got from family when we were struggling students. Under the Income Tax Act, those kind family sacrifices can bring financial rewards.
 
This works if the student does not have sufficient income to use the tuition, education, and textbook amounts earned in the current year. In that case, a portion of the unused amounts may be transferred to a cohabiting spouse or common-law partner.
 
If the taxpayer does not have a spouse or common-law partner or the person's spouse or common-law partner is not claiming the taxpayer as a dependant, then the unused amount may be transferred to the taxpayer's parent or grandparent or to the spouse's parent or grandparent.
 
The maximum amount that may be transferred is the lesser of
  • the unused tuition, education and textbook amount for the year
  • $5,000 minus the student's claim for the tuition, education, and textbook amounts earned in the current year.
Any amount not claimed by the student in the year and not transferred to a supporting individual may be carried forward to future years. The amount carried forward must be used as soon as possible and claimed before any current year tuition, education and textbook amount. The carried forward amount may not be transferred, but must be used by the student. 
Provincial credits.   You should also know that the tuition, education, and textbook amounts at the provincial level may not correspond to the federal amounts, so a separate provincial Schedule 11 may be required when you file your tax return.  In addition, the unused tuition, education, and textbook amounts carried forward may be different at the federal and provincial level.
Correcting Errors and Omissions. If you made mistakes claiming your entitlements or missed them entirely, know that you can adjust federal returns for a period of 10 years in the past. Provincial adjustments can generally be made for a period of only three years. Check out the tax advantages of going to school with your tax and financial advisors. 
It can make a big difference to cash strapped students and their families.  Happy studying!

CLAIMING ONGOING COSTS OF EDUCATION

I remember feeling so great about graduation from college for a number of reasons, but likely the most important one: I no longer was going to be chronically broke! I sure was looking forward to that first paycheque from my new teaching job.
Today certain tax credits have been enhanced to help both full and part time students. I thought you might want to learn a bit more about that. So the subject of today’s article is the monthly education amount.
 
A full-time education amount may be claimed for each whole or part month in the year that the student was enrolled in a qualifying educational program at a designated educational institution and the student: was enrolled full time, was enrolled part time and qualified for the disability amount, or was enrolled part time because of a mental or physical impairment.
 
A part-time education amount may be claimed if the student does not qualify for the full-time amount but has spent a minimum of 12 hours in the month on coursework. A part-time education amount may be claimed for each whole or part month in the year that the student was enrolled in a specified educational program at a designated educational institution.
 
A qualifying educational program is a program that lasts at least 3 consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). Instruction or work includes lectures, practical training, and laboratory work. It also includes research time spent on a post-graduate thesis.
 
A program is not considered a qualifying educational program if the student receives, from a person with whom he or she deals at arm's length, a grant, reimbursement, benefit, or allowance for that program.
 
However, receipt of a scholarship, fellowship, bursary, or prize received, or any benefit received under the Canada Student Loans Act, Canada Student Financial Assistance Act, or the Act respecting financial assistance for education expenses of the Province of Quebec does not disqualify the education program.
 
After 2003, a program taken by the student in connection with the student's employment duties, even if that student receives income from that employment, does qualify for these purposes, provided only that the employer does not reimburse the tuition cost.
 
A specified educational program is a program that lasts at least 3 consecutive weeks and requires at least 12 hours of instruction each month.
 
Only one education amount may be claimed for each month – the full-time amount or the part-time amount.
 
Age limitation for education credit. Students who are under 16 at the end of the year, may claim the education amount only for courses taken at the post-secondary level.
 
Beware. . . Students may not claim the education amount if they:
  • received a grant or were reimbursed for the cost of courses, other than by award money received,
  • received a benefit as part of a program (such as free meals and lodging from a nursing school),
  • received a salary or wages while taking a course related to their job, or
  • received an allowance for a program such as a training allowance.
Bonus: Amount for Textbooks. The 2006 Federal Budget introduced a non-refundable tax credit that recognizes the cost of textbooks. The credit is calculated based on the number of months of full-time or part-time attendance as certified on Form T2202A.
The amount is $65 per month for full-time attendance and $20 per month for part-time attendance. The credit is, in fact, an increase in the Education Amount and the requirements for this credit are identical to those of the Education Amount.
NEXT TIME: TRANSFERRING SCHOOL COSTS TO SUPPORTERS

CLAIMING TUITION FOR POST-SECONDARY EDUCATION

If you have a university bound student in your home this year, there is plenty of good tax news to help with the students. Once again, it’s important to be aware and remember to keep all receipts!
Post-secondary students may claim a non-refundable tax credit on their tax return featuring three parts:   the tuition amount, the education amount and the relatively new amount for textbooks. Better yet, if not taxable, the claim for the tuition, textbook and education amounts may be transferred from a student to the supporting individual. Under or unused amounts may be carried forward to future years when the student has more income.
Tuition fees Claimable. Students may claim the fees paid for courses taken in the tax year, which is the calendar year. To qualify, each tuition fee must be more than $100 and must be paid as follows:
  • for courses at a post-secondary school level paid to a university, college, or other educational institution in Canada,
  • paid to an educational institution in Canada certified by the Minister of Human Resources Development for courses (if the student was 16 or older in the year) to develop or improve skills in an occupation,
  • for courses at a post-secondary school level paid to a university, college, or other educational institution in the United States if the student lived in Canada near the border throughout the year and commuted to the school, and
  • if the student was in full-time attendance at a university outside Canada, for courses that were at least 13 consecutive weeks long, and that will lead to a degree.
Eligible tuition fees include admission fees, charges for the use of library or laboratory facilities, examination fees, application fees (but only if the student later enrols in the institution), charges for a certificate, diploma, or degree,  mandatory computer service fees, academic fees, the cost of any books that are included in the total fees for a correspondence course, and fees, such as athletic and health services fees when such fees are required to be paid by all students. If not all students are required to pay them, then amounts eligible are limited to $250.
 
Non-qualifying tuition fees.  You should also be aware that certain costs cannot be claimed; specifically if:
  • they are paid or reimbursed by an employer, where the amount is not included in the employee's income,
  • paid by a federal, provincial, or territorial job training program where the amount is not included in income, or
  • the fees were paid (or are eligible to be paid) under a federal program to help athletes, where the payment or reimbursement has not been included in income.
In addition, the following are not deductible as tuition fees: students' association fees, medical care, transportation and parking, meals and lodging, goods of lasting value that you will keep, such as a computer, microscope, uniform, or an academic gown, and initiation or entrance fees to a professional organization.
Filing Requirements. The claim for these credits originates on the student's Schedule 11 Federal Tuition, Education, and Textbook Amounts. Claim the amounts transferred from a child to a supporting parent or grandparent on line 324. If the transfer is to the student's spouse, complete Schedule 2 Federal Amounts Transferred From Your Spouse or Common-law Partner.
Tax Receipting. The educational institution will issue an official receipt or Form T2202 Education and Textbook Amounts Certificate or Form T2202A Tuition. Education, and Textbook Amounts Certificate showing the amount of tuition paid.
Universities outside Canada may send the student Form TL11A Tuition, Education, and Textbook Amounts Certificate – University Outside Canada, TL11C Tuition, Education, and Textbook Amounts Certificate – Commuter to the United States or TL11D Tuition Fees Certificate – Educational Institutions Outside Canada for a Deemed Resident of Canada. Flying schools may send Form TL11B Tuition Fees Certificate – Flying School or Club.
NEXT TIME: CLAIMING ONGOING EDUCATION COSTS

MAXIMIZING THE CHILDREN’S FITNESS AMOUNT

Private lessons for after school sports, dance and music cost lots of money, but it’s all worth it, particularly if a tax deduction or credit can help with costs. While it’s not that much in real dollar terms, the Children’s Fitness Amount, a non-refundable tax credit of up to $500, provides some recognition of these costs to parents. 
 
Where the child is eligible for the disability amount and the qualifying fitness expenditures are at least $100, an additional credit of $75 may be claimed.
 
Here are some details for you; the big issue is remembering to keep the receipts in a safe place!   
 
Parents Can Split Claim. This credit may be claimed by either parent or split between them so long as the total amount claimed does not exceed the allowable claim. To be eligible for the credit, fees must be paid in respect of eligible expenses in an eligible program of physical activity.
 
Eligible Programs. An eligible program of physical activity is defined as an ongoing program intended to enhance the physical strength, balance and endurance of participating children.
 
Claimable Expenditures. The following items are eligible for the children's fitness tax credit:
  • operation and administration of the program
  • instructions
  • renting facilities
  • equipment used in common (e.g. team jerseys provided for the season)
  • referees and judges
  • incidental supplies (e.g. trophies).
Expenses that are not eligible include the purchase or rental of equipment for exclusive personal use, travel, meals and accommodation.
 
Filing Requirements. The claim is made on Schedule 1, line 365. A claim for the amount for children's fitness needs to be supported by a tax receipt that contains information sufficient for the CRA to monitor compliance. Similarly, organizations are required to keep relevant books and records. Taxpayers should retain the receipts issued by the organizations that delivered the programs.
 
Child Care Expenses. Some expenses may be eligible for both the Children’s Fitness Amount and as child care expenses. In that case, the expenses must first be claimed as child care expenses. Only the unused amount after claiming child care expenses may be claimed for the fitness credit amount. 
 
Bankruptcy. Where an individual becomes bankrupt in the year, the Children's Fitness Tax Credit on the pre- and post-bankruptcy returns must be pro-rated according to the number of days in each period.
 
NEXT TIME: CLAIMING POST-SECONDARY EDUCATION COSTS

DETAILS ON CLAIMING CHILD CARE

Going back to school this fall? If so, you might be paying child care to do so. The good news is that those expenditures may be deductible. The rules below are important so you can keep the receipts and make a claim for child care expenses come tax time:
An eligible child for the purposes of claiming child care must be
  • a child of the taxpayer, the taxpayer's spouse or the taxpayer's common-law partner or
  • a child who was dependent on the taxpayer, the taxpayer's spouse or common-law partner.
The definition of child includes an adopted child or the spouse of a child of the taxpayer. The definition of a dependant child is one whose net income is less than the Basic Personal Amount.
Child care must be for services provided in Canada (although special rules exist for deemed residents and US-Canada commuters) by:
  • a day nursery school or day-care centre,
  • a day camp or day sports school,
  • a boarding school or camp (including a sports school where lodging is involved),
  • an educational institution for the purpose of providing child care services, or
  • an individual who is not
    • the child's father or mother,
    • a supporting person of the child,
    • a person in respect of whom the taxpayer or a supporting person of the child has claimed a personal amount or
    • a person who is under 18 years of age and related to the taxpayer.
The following are specific expenses that may be claimed:
  • baby-sitting costs,  day care costs,  costs of a live-in nanny; which may include advertising, salary and benefits including the employer's portion of CPP and EI,
  • lodging paid at boarding schools, day camps, overnight sports school and overnight camps to a maximum of:
    • $100 per week for each child age seven to 16 for which the Disability Amount cannot be claimed, plus
    • $175 per week per child under seven for which the disability amount cannot be claimed, plus
    • $250 per week for each disabled child
Ineligible expenditures, for your information, include medical or hospital care, clothing, transportation, tuition fees, board and lodging expenses except when they are included in the total charges for a boarding school, day camp or overnight sports school and do not exceed the weekly limits, expenses which were not actually paid or which were or will be reimbursed.
And there is more good news: some of your expenses may be eligible for both the Children’s Fitness Amount and the deduction for child care expenses. In that case, the expenses must first be claimed as child care expenses. Only the unused amount after claiming child care expenses may be claimed for the fitness credit amount. We will tell you more about that, next time.
 
NEXT TIME: DETAILS ON THE CHILDREN’S FITNESS AMOUNT