Some students may not realize that paying income tax or filing a tax return applies while in school. It may be easy to overlook certain types of income that need to be included in a student tax return, but to rectify this, Chris Bodnar, CPA, CA and tax partner at Crawford, Smith and Swallow, advises, “Depending on the circumstances, you can use form T1ADJ to adjust a tax return where no penalty is likely to be assessed.” This makes it possible to adjust previous returns if you left out income you didn’t know you had to claim.
Employment Income
All money that you receive for work — occasional, part-time or full-time — is considered employment income.
Usually at the beginning of the next tax year, your employer gives you a T4 slip that shows the money you earned, any taxable benefits and the tax that was taken out of your pay. If you purchased any security option benefits from your employer, they will also be on the T4, as well as any payments from an agency where you volunteered.
It is not necessary to count lottery winnings, provincial or territorial program payments, GST/HST or child tax credits, and gifts and inheritances as income, although there are some minor exceptions.
Tips and Gratuities
The Income Tax Act considers all tips as earned income that must be declared.
Many students earn wages that include tips. There are two types of tips, one in Quebec:
The first is the controlled tip, where your tips are controlled by your employer, such as through a surcharge attached to the client’s bill, money that is declared as business income and later redistributed to employees, or tips that are turned over to the employer who later divides them among the staff. Controlled tips appear on your T4 slip and are eligible for employer contributed Canadian Pension Plan contributions and Employment Insurance premiums.
Direct tips include monies that are left on a serving table, handed to you personally by a customer or pooled by your coworkers and shared at the end of a shift; direct tips also include money that is allocated on a credit or debit card. CRA considers these tips to be paid by the client and are not insurable, but they need to be counted as income.
In Quebec, you are required to declare tips to your employer. These declared tips are included in your insurable earnings.
Scholarships, Bursaries and Apprenticeships
A certain portion of scholarships, fellowships and bursaries may be taxed as income, unless you are eligible for the education amount, which is calculated using a formula provided by CRA.
Full tax exemption applies to scholarships, fellowships and bursaries awarded for full-time study toward a diploma or degree, with the exception of postdoctoral study. If you receive an artist’s project grant, you should declare it, but you may use a scholarship exemption, if applicable, to reduce your income.
Apprenticeship grants must be declared as income and will be on your T4A slip.
Registered Education Savings Plan
An RESP is considered an educational assistance plan and the interest you receive from it must be shown on your tax return as income earned. The carrier of the RESP sends you a T4A that shows the amount you received. You are entitled to receive RESP payments for up to six months after you leave school.
References & Resources
- Chris Bodnar CPA,CA; Crawford,Smith and Swallow; Niagara Falls; Ontario
- Canada Revenue Agency: Common Types of Income for Students