Post-secondary education can be expensive. Many students look for ways to reduce the cost using various methods such as bursaries, scholarships, fellowships and financial assistance. However, there are tax implications that you should be aware of when accepting these means of assistance toward a higher education.
Different Forms of University Payments
Besides out-of-pocket income, there are several ways that you can finance your post-secondary education. For example, scholarships or bursaries are given to qualified students in order for them to pursue further education. Fellowships are similar to scholarships, except that they are awarded to graduate students. Grants are funds gifted by a separate entity, usually to finance a student who is pursuing research.
Financial assistance is also considered a type of student income, which are benefits or funds given to a student to help pay for higher education. Financial assistance is generally provided by a government organization, but a company that you work for can also choose to supply assistance.
Another common form of university-related income is income from Registered Educational Savings Programs. This is a program in which parents put aside an annual amount for 18 years in investments, with the goal of funding higher education for their child. In an RESP account, only the investment gains are taxed when the amount is taken out. All other amounts can be withdrawn tax-free. Note that the taxable portion is taxed at a rate according to the income bracket of the child. Since the child is likely to have little to no income, this serves as a tax-saving method.
Scholarships, fellowships and bursaries are added to a taxpayer’s income, with the amount of $500 considered exempt. However, there are some rules that allow for a partial or full amount to be excluded from your income. For example, if you are enrolled full-time in higher education and are eligible for the education tax credit, your exclusion amount may be as high as the cost of your program and related expenses
Additionally, if you are a student and your education is related to the production of artistic, musical, dramatic or literary works, you may be eligible for an art production grant exemption. This exemption is limited to the amount of reasonable expenses claimed in the year that are related to your artistic work. Note that this amount cannot exceed the grant amount. As well, you cannot create a loss with these exemptions or carry forward a loss. For tax purposes, RESP accounts are not eligible to be included in the scholarship exemptions.
Reporting University Income on Your Return
Students receiving university income should receive a T4A, Statement of Pension, Annuity, Retirement or Other Income. Alternatively, students may receive a T4E, Statement of Employment Insurance and Other Benefits. Report any amount over $500 on line 130 of your tax return, unless you were entitled to the education tax credit. Also, if you were enrolled in an artistic program, you can deduct your expenses and report the difference on line 130. The university will provide you with a slip that shows your applicable tuition, education and textbook deductions, which you can enter on line 323.