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[H&R Block Insight - October 2009]
[Parents pay and the kids get the credit]

September means back-to-school as students returned to the classroom. For parents, it means opening their wallets to pay fees especially for college and university students. One the most frequent questions we receive is from parents paying post-secondary tuition for their children. Basically, parents want to know if they can claim the tuition credit if they paid the tuition, not the student.

All post-secondary institutions issue a tax receipt called the T2202A which outlines the amount of eligible tuition. The T2202A is always in the student's name no matter who paid the tuition. Students must claim the tuition receipt on their tax return, whether they have income or not.

The tuition credit is used to reduce the student's tax owing to zero. For a student without taxable income, they do not have to use any of the tuition credit amounts on their tax return. The good news is the credit is not lost - there are a couple of options. If any of the tuition is remaining, the student can carry it forward to use in later years when they are earning more income. Or the student may transfer up to $5,000 to a parent, spouse or grandparent so they can use the tuition credit to lower their tax payable.

Ultimately, the decision is up to the student since they are issued the T2202A. If a parent, spouse or grandparent does use the transfer, the student must sign the back of the T2202A for it to be valid. And the tuition transfer is one of the most reviewed credits by the Canada Revenue Agency (CRA) so if you E-file, be prepared to send in the paperwork if the CRA asks.

 

[Laid off?]

Last month, we received an interesting question from one of our readers. Tina's husband was recently laid off and she asked about the tax implications for government assisted tuition. In addition, she wondered whether they could make a withdrawal from a Registered Retirement Savings Plan (RRSP) under the Life Long Learning Plan (LLP) to help with expenses.

Unfortunately, this is becoming a more common situation as many Canadians are finding themselves unemployed. So what are your options if you have been laid-off and what are the tax implications?

The first step for recently unemployed Canadians is usually applying for Employment Insurance (EI) benefits if they qualify. EI benefits do not replace your full employment income. It is meant to be a temporary support until you find another job. What many people don't realize is the tax withheld on EI payments is approximately 10 percent which is less than the minimum Federal tax rate. So unless your taxable income is less than $10,320, you will need to pay additional tax.

Hopefully individuals are able to find new employment quickly so they will not have to rely on EI benefits for too long. Some Canadians are choosing to get back to work by starting their own business. Depending on the type of work they used to do, this might be an easy transition. Before undertaking a business, it is important to consult a tax professional to find out about how to keep proper records and what expenses can be deducted.

For some, being laid off is the motivation they need to make a career change and go back to school. There are Federal and Provincial assistance programs available and you should investigate the options. One such program is actually part of EI. It helps fund tuition for your education or retraining.

No matter where your tuition assistance comes from, the amount of tuition may or may not be taxable. If you receive the tuition as non-taxable there is no tax implication, but if the tuition assistance you receive is taxable you are liable for the additional tax owing. To offset this added income you can claim a tuition credit if you receive a tax receipt (T2202A) from the school you are attending. If the tuition assistance is through EI, you will also be able to claim an education credit for attendance; this information is included on your T2202A.

Lifelong Learning Plan (LLP)
You are able to withdraw funds from your Registered Retirement Savings Plan (RRSP) to finance your or your spouse's education.

Under the Lifelong Learning Plan (LLP), taxpayers may withdraw up to $10,000 in a calendar year, to a maximum of $20,000 over a period of up to four calendar years. At the time of the withdrawal, the person receiving the funds from the LLP withdrawal must be enrolled as a full-time student in a qualifying educational program of at least three months duration.

The funds do not have to be paid directly to the educational institution, nor do the funds have to be used specifically for school expenses. However, if the student does not complete their program or attends only part-time, the funds must be repaid sooner rather than over a 10 year period. Therefore, it is important to ensure the program qualifies before withdrawing the funds.

 

[Home Renovation Tax Credit quiz]
Home Reno Tax Credit Countdown - 115 Days Left as of October 9th

A recent survey by Angus Reid Strategies and H&R Block showed only 12 percent of Canadians said they knew a great deal about the new Home Renovation Tax Credit (HRTC). But with many homeowners looking to take advantage of the HRTC, it is important to understand what is covered and what is not. Take the H&R Block HRTC Quiz to test your knowledge.

  1. You can claim the costs of renovating your bathroom in your house or condominium. (TRUE/FALSE)
  2. You can claim window coverings that are installed such as window shutters or custom draperies. (TRUE/FALSE)
  3. You can claim your share of the cost for renovating the front lobby of your condominium. (TRUE/FALSE)
  4. What is the deadline for claiming the HRTC?
  5. You can claim the cost of finishing your basement to include an apartment in your house to rent out. (TRUE/FALSE)

Answers: True, True, True, January 31, 2010, False