Tag: Tax credit

Tax and the post-secondary education student

September is back-to-school month. In addition to the excitement and anxiety, those in post-secondary schooling often face fairly substantial expenses.

Fortunately, our tax system allows many avenues of tax relief for post-secondary education students. Here are the most common tax issues for students.

Hitting the books

Education amount

For the federal education amount, a student may claim either the $400 full-time amount or the $120 part-time amount, depending on the parameters of the program in which he or she is enrolled. Either way, the amount is multiplied by 15%, the lowest income-tax bracket rate, for a value of $60 or $18 for each month of full- or part-time enrollment, respectively.

Textbook amount

A student qualified for the education amount may also claim the textbook amount. The monthly amount for full-time students is $65 and for part-time students is $20, being worth about $10 and $3 per month, respectively, once multiplied by the 15% rate.

Tuition credit

Eligible amounts include fees for admission, library access, laboratory usage, athletic facilities, examinations and diplomas. Student association fees do not qualify, nor do any amounts reimbursed, for example, by an employer. The actual amount is again multiplied by the lowest income-tax bracket rate to determine the value of the credit. The amount must total at least $100 per institution in order to claim the credit.

Transfers and carryforwards

If a student does not have enough income to make use of the education, textbook and tuition credits, it may be possible to transfer up to a $5,000 amount (that is, $750 of value) to a spouse, common-law partner, parent or grandparent for that year. Alternatively, such amounts may be carried forward to be used against the student’s future years’ income, but transfers to other individuals in those future years are not allowed.

Work and study

Educational Assistance Payments (EAP)

Amounts paid to a student from a registered education savings plan (RESP) as an EAP will be taxable to the student. These taxable amounts are the earnings and payout of government grant money previously received into the RESP. Amounts drawn from an RESP that are return of contributions are not taxable, whether paid to the student, to an educational institution directly or back to the plan subscriber.

Tax-exempt awards

Scholarship, fellowship and bursary income is tax-free so long as the associated enrolled program is one that entitles the student to claim the education amount.

Getting there and back

Moving expenses

A person who moves at least 40 kilometres to attend a post-secondary institution may be entitled to claim moving expenses, but only as a deduction against the taxable portion of scholarships, research grants and the like.

Transit passes

Though certainly not exclusive to students, public transit passes are obviously used frequently by post-secondary education students. The tax credit for such passes is welcome relief.

GST/HST credit

 The commencement of post-secondary education often coincides with the student having turned 19, which is the threshold age to qualify for the GST/HST credit. To obtain the credit, which is in the form of a quarterly payment or direct deposit, the individual must file a tax return and check the appropriate box.

Out into the world

Moving expenses, revisited

Travel to a summer job may qualify for the moving expense deduction, as long as the 40-kilometre requirement is satisfied. The deduction is net of any reimbursement or allowance paid by the employer.

Interest on student loans

On the repayment of student loans, an amount may be claimed for the interest paid. This applies to loans under the Canada Student Loans Act, the Canada Student Financial Assistance Act and similar provincial/territorial laws. If desired, this claim can be carried forward up to five years from the date the interest is paid.

Lifelong learning plan (LLP) repayments

Generally, LLP repayments to a registered retirement savings plan must commence no later than five years after the first withdrawal and be completed in 10 years. However, LLP repayments often commence earlier. Failure to make a required payment results in the amount being included in income.

Donating frequent flyer points – Is all “Hope” lost?

Frequent-flyer plans often allow members to donate points to charities. One charity that benefits is Hope Air, a provider of free flights to individuals who are in need of travel to obtain medical treatment but cannot afford travelling costs. The recipients’ average household income is below the poverty line, and many patients require cancer treatment or organ transplants. The charity has been in operation for almost 25 years and each year organizes about 2,500 flights.

Air travellers’ security charges

In 2007, Hope Air was at odds with the Minister of National Revenue over its claim for a refund of charges it paid under the Air Travellers Security Charge Act (the “Act”) between 2002 and 2007. It based its refund claim on an exception in the Act that says, 

“No charge is payable in respect of an air transportation service that is acquired … by a registered charity from an air carrier for no consideration, if the service is donated by the charity to an individual for no consideration and in pursuit of its charitable purposes.”

Hope Air faced a bill of over $40,000 despite its charitable status, so it appealed the assessments to the Tax Court of Canada.

Form and routing of the donation

In general, Aeroplan members can donate or relinquish their points to approved registered charities or programs, including Air Canada’s charitable program Kids’ Horizons. Aeroplan began in 1984 as Air Canada’s points program, but by 2002 it had become a separate legal entity. 

At the beginning of each year, Hope Air would meet with a Kids’ Horizons representative to request support based on the coming year’s expected needs. Air Canada then donated Aeroplan points and return-flight passes based on those discussions. On average, that amounted to about 3 million points and 100 passes annually. 

As a given travel need arose, Hope Air determined whether it was more cost-efficient to use the flight passes or the points. The passes are redeemed with Air Canada directly, whereas Hope Air uses its account on the Aeroplan website to redeem points and purchase flights. The CRA’s assessments exempted the flight passes, but not the points. 

Consideration paid?

The decision hinged on whether both transactions — donation of points to Hope Air and acquisition of air travel by Hope Air — were completed for no consideration. While the former transaction fulfilled the requirement, the judge determined that the acquisition of the flight via the Aeroplan website was an exchange for consideration.

Ironically, one of the cases relied upon to come to this decision was a claim by a taxpayer for a medical expense tax credit based on using Aeroplan points to fund a flight from Thunder Bay to Chicago for medical treatment. The assessment asserted that the points had no value, but the taxpayer successfully appealed on the basis that there was exchangeable value in that circumstance. 

In the present case, the judge expressed that while Hope Air provides a valuable and essential service, it does not fall within the exclusion here. But he did suggest that the Crown could return the charges or remit the charges to Hope Air pursuant to provisions of the Financial Administration Act.

So maybe Hope is not lost after all.

A tangled web – Taxes don’t bug this amateur entomologist

Can someone actually enjoy an insect collection? Maybe not in the strict sense of the word, but one may nonetheless enjoy the tax results that derive from it.

This was actually one of the questions canvassed in a recent appeal heard at the Tax Court of Canada. It was an appeal from the assessment of tax associated with the charitable donation of an insect collection, which was ultimately decided on the issue of whether the collection was a “set.”

The Plamondons and PUP

Danielle Plamondon and her spouse were amateur entomologists who collected insects all over the world. In recent years they donated specimens to various non-profit organizations, for which they would receive donation tax receipts. 

It was a donation to Laval University in 2005 that became the subject of dispute between Plamondon and the Canada Revenue Agency. The donation tax receipt referenced a “collection of insects,” and indicated a value of $25,419. CRA interpreted this as a single donation of “personal-use property” (PUP), for which the prescribed adjusted cost base would be $1,000, with the value of disposition being the greater of $1,000 and the actual proceeds. This resulted in the assessment of a capital gain of $24,419. 

While not the determining factor in the case, the Court scrutinized the issue of enjoyment. Plamondon testified that the specimens “are beautiful to an entomologist who is passionate about this, but we don’t have any insects displayed in the house. I have no need to see any on my walls.”

What the case really turned on was whether the insect collection truly constituted a “set” under the PUP rules. Plamondon had donated 2,158 insects from 46 different counties, covering at least 268 different species. Each insect was independently evaluated by a professional appraiser who took into account the preparation, humidification, display, pinning and identification to attribute a value to each specimen. 

Based on these facts, the judge held that the donated insects are distinct properties, not linked to one another, and do not form an unbreakable set. The PUP rules should therefore apply to each item separately, and as none of the insects had a value higher than $1,000, there would be no tax owing on the donation. 

Recall Mr. Donato and his cartoons

The present case brings to mind a similar case from a couple years back that dealt with the donation of cartoons.

Andy Donato produced political cartoons for daily publication in the Toronto Sun. Over the years, he donated some of the cartoons to museums, educational institutions and other recipients. In 2007, Mr. Donato was assessed for the 1999 and 2001 taxation years on the basis that he realized taxable capital gains when the works were gifted to charities.

The judge in the Donato case determined that the cartoons were not personal in nature, but rather arose out of commercial obligations with his publisher. 

With respect to 2001, the PUP rules therefore did not apply, and the assessment of a taxable capital gain was upheld. The distinction between individual items and a collective “set” was also mentioned, but it had no bearing on the result, given the determination that the PUP rules did not apply.

With respect to 1999, the judge held that the assessment was statute-barred. Mrs. Donato made the donation after being gifted the pieces from her husband; the gift was subsequently reversed via a Rectification Order. Still, the judge held that Mrs. Donato’s claim as to personal use property (and thus not reporting a capital gain) was a reasonably held belief in 1999, and subsequent events did not enable CRA to assess beyond the normal reassessment period.