Have your child file a tax return
If your child is earning income from a part-time or summer job, help them file a tax return.
Due to the basic personal amount, individuals in Alberta could earn up to $11,809 tax-free in 2018. While this level of income can be earned without paying taxes, filing a tax return from an early age allows a child to begin building RRSP contribution room for the future.
Consider an example where a teenager earns just $50 a week babysitting throughout junior high and high school. By reporting this income, $468 of RRSP contribution room would accumulate each year. For students with higher earnings, the potential for future tax-deferred savings increases accordingly.
If you prepare the tax return with your child, another potential benefit is the opportunity to teach your child a financial life skill.
Tax considerations for post-secondary students
Finances are often tight for students so it’s worthwhile to take advantage of all tax credits, deductions and sources of education funding that may be available.
Claim the federal and Alberta tuition tax credit as well as the Alberta education tax credit (note that the federal education and textbook credits have been eliminated). If you can’t utilize the tax credits for the 2018 tax year, you can carry the amount forward to be used in a future year or transfer up to $5,000 to your parent, spouse or common-law partner.
If you moved away from home to attend school in 2018, claiming your moving expenses may result in tax savings. Moving expenses cannot be carried forward so this will only be of benefit to students with sufficient 2018 income.
If you will continue your studies in 2019, consider your options for education funding. These may include savings, income from a part-time or summer job, scholarships or student loans. Savings may include funds in an existing Registered Education Savings Plan (RESP) or Registered Retirement Savings Plan (RRSP).
If you are the beneficiary of an RESP, a common strategy is to maximize withdrawals from the RESP once you begin post-secondary education in a qualifying educational program. The intention of this strategy is to ensure you access the grants and bonds that are available in the RESP as well as the investment earnings in a tax-efficient manner. To learn more on RESP withdrawal planning and other RESP topics, please refer to our RESP Guide.
Another option for students with RRSPs is a tax-free withdrawal from your RRSP under the Lifelong Learning Plan. You can withdraw up to $10,000 per year to a maximum of $20,000 over four years. Any amounts withdrawn must be repaid.
ATB Wealth consists of a range of financial services provided by ATB Financial and certain of its subsidiaries. ATB Investment Management Inc., ATB Securities Inc., and ATB Insurance Advisors Inc. are individually licensed users of the registered trade name ATB Wealth. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.
The information contained herein has been compiled or arrived at from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness, and ATB Wealth does not accept any liability or responsibility whatsoever for any loss arising from any use of this document or its contents. ATB Wealth does not undertake to provide updated information should a change occur. This document may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions and conclusions contained in it be referred to without the prior consent of ATB Wealth. This document is being provided for information purposes only and is not intended to replace or serve as a substitute for professional advice, nor as an offer to sell or a solicitation of an offer to buy any investment.