 Young People & Taxes
By Pearl Gittins of Investors Group Young
people and taxes - make sure your kids know how to save while they work. Tax innocence
ends where work begins - even for kids who work part-time, after school or during the
summer. Does your child have to file an income tax return? The answer is a definite
“yes” if they earn more than the federal basic personal credit amount of $7,634
in 2002.
It is true that most students won’t make that much working only
sporadically through the year, but a young person - especially a university student with a
longer break between terms, who works for the entire summer and part-time
during the school year - could easily earn more than the basic exemption amount. In that
case, they will definitely have to file a return and may have to pay federal and
provincial taxes, depending on the credits and deductions that can be used to their
advantage.
Note that for taxation purposes, salaries and wages are not the only
sources of income that must be reported by a young person. Other types of taxable income
include tips and gratuities, investment income, scholarship income, research grants and
education payments from a Registered Education Savings Plan (RESP).
How do you make sure your kids don’t pay more taxes than they
should, or more likely, no taxes at all? Simply by taking full advantage of these
additional tax breaks:
•Tuition fees paid by post-secondary students are eligible for a
tax credit. Eligible fees may include application fees, admission fees, charges for the
use of a library or laboratory facilities, exam fees, computer service fees, certain
academic fees and sometimes other fees or costs such as athletic and health service fees,
or books (correspondence courses only).
•Education status credits of $200 a month are available to
eligible students for each month that they attend a post-secondary institution. Full-time
and co-op students are usually eligible, as are part-time students who could not be
enrolled full-time because of a mental or physical impairment.
•Interest paid on student loans is also an eligible tax credit.
The credit is available for interest paid in each tax year after 1997 and can be carried
forward for five years.
•Moving expenses are sometimes an allowable deduction for students
who move to start a job or business (including summer jobs). Students who must move for
full-time attendance at a post-secondary institution (inside or outside Canada) can also
deduct moving expenses, but only up to amounts received for scholarships or research
grants.
•Goods and services tax/harmonized sales tax (GST/HST) credit is
available to students 19 years of age or older.
Even if your children are not in the tax-filing category, it may be
worthwhile for them to submit a return for future financial planning reasons - like
building up contribution room in a Registered Retirement Savings Plan (RRSP) that can be
used in later years when they are earning taxable income.
Parents can also co-ordinate their tax planning with that of their
children to increase combined credits and deductions. For example, a business owner may be
able to achieve personal and family tax savings by paying a ‘reasonable’ salary
to a child for services actually rendered.
To fully explore the tax-planning opportunities available to you and
your working child, it is a good idea to speak with a financial advisor - because young or
not-so-young, nobody wants to pay more tax than necessary.
This column, written by Investors Group Financial Services Inc., is
presented as a general source of information only and is not intended as a solicitation to
buy or sell investments, nor is it intended to provide professional advice including
investment, financial, legal, accounting or tax advice.
This column was supplied to RWM by Pearl Gittens,
consultant for Investors Group. Pearl may be reached at 403.284.0494 Ext 282. Ask about
her educational seminars! |
