Waters & Meredith

Serving Niagara..

Client Information Newsletter: 3rd Quarter 2003

CONTENTS

  • The Cost of Post Secondary Education
  • How to Pay
  • Registered Education Savings Plans (RESP)
  • Savings and Investments
  • Student Employment
  • Family Loans or Gifts
  • Income Tax Matters for Students
  • Receipts for Income Tax Purposes
  • Investing
    		•

    THE COST OF POST SECONDARY EDUCATION

    1. As parents with children attending college or university know, the educational cost is high.


    2. Annual costs include (all estimates):
      Tuition $5,000
      Books $1,000
      Food Plan $2,000
      Accommodation $4,000
      Personal Spending ?

    3. The costs vary between institutions, whether the student lives at home and transportation expenses.


    4. Private schools cost more.

    Back to Contents

    HOW TO PAY

    1. Registered education savings plans


    2. Savings and investments


    3. Scholarships


    4. Student loans


    5. Student employment


    6. Family loans or gifts

    Back to Contents

    REGISTERED EDUCATION SAVINGS PLANS (RESP)

    1. The annual maximum con-tribution to a RESP is $4,000 per child. This is NOT tax deductible.


    2. There is a Federal grant available which will increase the amount in the RESP. The maximum grant is $400 based on a 20% grant on $2,000.


    3. The lifetime maximum contribution to a RESP is $42,000.

    SAVINGS AND INVESTMENTS

    1. Parents and grandparents may wish to invest for the student outside the RESP, or in addition to the RESP.


    2. If the investment generates interest or dividend income, the income is taxable to the parent or grandparent, not the student, until the child is 18.


    3. If the investment generates capital gains, there is no tax cost to the parent or grandparent. The capital gain is taxable to the student. Only one-half of capital gains are taxable.


    4. There are investments that only generate capital gains, not interest or dividends.

    STUDENT EMPLOYMENT

    1. If a student is employed by a third party, the student will receive a T4 by the end of February of the following year.


    2. If the student is employed by a family business, it is important to document the type of work done and hours worked. A T4 should also be prepared. CCRA may question the amount paid to a student to determine whether it is reasonable. If it is not reasonable, a portion may not be allowed as an expense to the family business.

    FAMILY LOANS OR GIFTS

    1. As noted earlier, if parents or grandparents give students cash or income-bearing investments, the income may be taxable to the donor.


    2. This is not always the case.


    3. If there is a pattern of gifts for birthdays, religious holidays and special events, such as graduations, there may not be a taxable event for the donor.

    INCOME TAX MATTERS FOR STUDENTS

    1. Students can claim a tax credit based on their actual tuition for the calendar year.


    2. There is credit allowed for full-time or part-time attendance. These credits may be transferred to a spouse, parent or grandparent if the student cannot claim them.


    3. The first $3,000 of scholarships are exempt from tax. The excess over $3,000 is taxable.


    4. A student can claim a deduction for the cost of moving to school, or home again, to the extent he earns income in the new location.


    5. Students should file income tax returns to:

      (i) create room for later RRSP contributions
      (ii) obtain a GST refund on reaching age 19
      (iii) possibly obtain a PST refund
      (iv) claim rent


    6. It may be possible to have students paid through a family business or family trust to help fund the costs.

    RECEIPTS FOR INCOME TAX PURPOSES

    1. It is imperative to have the appropriate receipts in order to be able to claim the costs.


    2. The receipts for moving to school should be obtained now. Trying to find these next April may be difficult.


    3. If the student lives in residence, the credit is small.


    4. If the student lives off campus, rent receipts should be obtained and kept.


    5. The college or university will issue receipts for tuition and show the number of months of full-time or part-time attendance.


    6. CCRA routinely requests these receipts, so if you do not have them, the claim will be disallowed.

    INVESTING

    1. Develop a rapport with a financial advisor you have faith in. If one advisor does not give you a comfort level, consider interviewing others.


    2. The money at risk is yours, so it is imperative you have an understanding of what you are investing in, and why.


    3. There is no single investment for everyone.


    4. You and your advisors must determine:

      (i) your cash needs
      (ii) how much (if any) should be invested in:
      - guaranteed investment certificates
      - government bonds
      - stock
      - mutual funds
      - income trusts
      (iii) your investable assets
      (iv) the long term - beyond ten years
      (v) the income tax status of investment income


    5. In our experience, it is reasonable to have a meeting between you, your investment advisor, your lawyer and your accountant to ensure your interests are served.


    6. You should always understand the risk to any investment and be comfortable with it, or you should not have the investment.

    We welcome comments you may have on this newsletter as well as suggestions for future topics.

    The information herein is provided for your general information and action should not be taken on the basis of this newsletter, but only on the advice of your own individual advisor, applying this advice to your individual situation. Please call if you have any questions.

    Waters Meredith MacRae & Tchang LLP
    Chartered Accountants
    Telephone: 905-356-4324
    Fax: 905-356-0964
    E-mail: wm@watersmeredith.com

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