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[H&R Block Insight - September 2008]
[Back-to-school could bring tax advantages]

As the final days of summer end, thousands of Canadians are preparing to get their children ready for back-to-school. Students across the country will be heading back to the classroom. Whether you have children in elementary, secondary or post-secondary school, there are some tax advantages to heading back to school.

Elementary

  • September is the time of year to sign up for new activities for the fall season. Remember you can claim the Children's Fitness Credit if the activity meets the requirements for the tax credit. The credit is designed to promote physical activity.
  • Before and after school care programs qualify as child care expenses. School fees are not tax deductible but lunch time supervision fees are considered a child care expense.
  • Scholarships are now tax exempt. This includes scholarships at the elementary school level.

Secondary

  • If your child is taking public transit to get to school, you can claim the Transit Tax Credit. Monthly passes, electronic tickets and weekly passes purchased for four consecutive weeks are eligible. Make sure you keep the passes or receipts and you can claim all the passes on one return if it maximizes the credit.
  • Scholarships are now tax exempt. This includes scholarships at the secondary school level.
  • High school students who are working should make sure they file a tax return. They usually don't have to pay any tax but can start building their RRSP contribution amount.
  • The Children's Fitness Credit is available for children up to age 16.

Post Secondary

  • Students can claim a number of expenses at tax time thanks to their T2202A form. This form allows you to claim tuition and education amounts as well as the Textbook Tax Credit. Many schools now make T2202A forms available online so students can access it easily. Unused tuition and education amounts may be transferable to a parent.
  • Scholarships are now tax exempt.
  • Students turning 19 before April 1, 2010 should file a tax return even if they had no income. This will allow them to collect the GST/HST credit for the first payment period following their birthday.

And if you are finding yourself not going back-to-school for the first time, there are some other tax advantages to entering the workforce.

  • If you move more than 40 kilometers to take a job, you may be able to claim moving expenses against your employment income at the new location. Deductible expenses include travel, transportation, storage and the cost of meals and temporary accommodation for up to 15 days.
  • Interest on government student loans is deductible if some of the loan is repaid during the year. Loans and credit lines outside of the government program are not deductible.
  • If you had any carry-forward tuition credits, you can use it to offset your employment income for 2008.

 

[Most RRSP assets protected in bankruptcy]

The new year brought some welcome changes to the bankruptcy act. Now Canadians holding Registered Retirement Savings Plans (RRSPs) will not lose everything in case of a financial crisis.

Prior to 2008, Canadians who declared bankruptcy would forfeit their retirement savings. Recent changes to the Bankruptcy and Insolvency Act now offers some RRSP protection from creditors. RRSP deposits made in the 12 months prior to declaring bankruptcy can be seized by your creditors. However, older deposits are protected. So if you are forced to choose this financial option, older deposits remain in the RRSP. And in some provinces, the entire RRSP amount is protected from creditors.

There are a few other important things to know about RRSPs. Aside from using the funds for retirement there are two other uses that you can take advantage of:

  • Home Buyers' Plan (HBP): Allows you to access up $20,000 from your personal RRSP account to purchase your first home. The withdrawal is tax free and you have 15 years to pay it back.
  • Life-Long Learning Plan (LLP): Allows you to withdraw up to $20,000, over four years, from your personal RRSP account to return to post-secondary studies. This is also a tax free withdrawal and you have 10 years to pay it back.

An RRSP is considered an asset when calculating your net worth, but you cannot use it as collateral for a loan.

When finances are tight, cashing in your RRSP may be the only way to pay down debt. But you need to remember the tax consequences. Your financial institution or mutual fund company is required to withhold tax from the withdrawal. The amount withheld depends on how much is taken out of the account (minimum 10 per cent). The government allows you to make tax-free contributions but if you withdraw the money, they expect you to pay the tax back.

This protection does not extend into divorce cases. The courts can rule that RRSPs have to be split and transferred to the other spouse.