Sources of income - Segment 3

Transcript

Host: Welcome to the segment called Sources of income, part of the Canadian Students and Income Tax video.

With me is Frank Stewart. Welcome Frank.

Subject matter expert: Thanks Janice.

Host: I've been paying income tax for a long time and I know that there are far more types of taxable income than non-taxable income. Why don't we do the short list first? Can you tell us what type of income is not taxable?

Subject matter expert: Amounts that are not taxable include:

  • GST/HST credit payments;
  • Canada child tax benefit payments or related provincial or territorial program payments;
  • most scholarships or bursaries, if received for a program that entitles you to claim the full-time education amount;
  • lottery winnings; and
  • most gifts and inheritances.

This is not a complete list. For more detailed information, go to the CRA webpage "Amounts that are not taxed". The link is included in the related links for this segment.

Host: So now that you've told us about amounts that are not taxable, what are the types of income that are taxable?

Subject matter expert: Generally, most types of income you receive are taxable and you have to report them on your income tax and benefit return.

Some of the common types of income a student may receive are:

  • employment income;
  • tips and gratuities;
  • occasional earnings;
  • investment income;
  • scholarships;
  • fellowships;
  • bursaries;
  • study grants;
  • artists' project grants;
  • research grants;
  • registered education savings plan payments; and
  • universal child care benefit.

Host: That's quite a long list. What type of employment income can a student expect to find on his or her T4 slip?

Subject matter expert: Employment income can be amounts you receive as salary, wages, commissions, bonuses, tips, gratuities, honorariums, and research grants. Employment income is usually shown in Box 14 of your T4 slips.

Host: You mentioned that tips and gratuities and occasional earnings are taxable. Where do I report those?

Subject matter expert: Income such as tips, gratuities, or occasional earnings may or may not be shown on your T4 slips. If they are not included on Box 14 of your T4 slips, report them on line 104 of your income tax and benefit return. It is your responsibility to keep track of the earnings you receive through your employment.

For more information go to the CRA webpage "Employment income not reported on a T4 slip." The link is included in the Related links for this segment.

Host: You mentioned that interest and investment income are taxable, is that right?

Subject matter expert: Yes. Interest and other investment income make up part of your total income and must be reported on your return.

Report interest from sources such as bank accounts, term deposits and guaranteed income certificates. These amounts are usually shown on your T5 and T3 slips.

Interest earned from a tax free savings account is not taxable.

For more information go to the CRA webpage "Interest and other investment income." The link is included in the Related links for this segment

Host: Earlier you mentioned scholarships, fellowships, bursaries, study grants, and artists' project grants. Before we get into how these are treated for tax purposes, can you give us some basic descriptions of each one of these type of payment?

Subject matter expert: Certainly.

A bursary or scholarship is defined as an amount paid or benefit given to students to enable them to pursue their education.

A fellowship is usually an amount paid or benefit given to graduate students to enable them to advance their education. The payer is normally a university, charity, or similar body.

An artists' project grant is a scholarship, fellowship, bursary or prize used in producing a literary, dramatic, musical, or artistic work.

Host: So are school awards such as scholarships and bursaries considered income?

Subject matter expert: Elementary and secondary school scholarships and bursaries are not considered income and are not taxable.

Post-secondary scholarships, fellowships and bursaries are not taxable if you receive them for your enrolment in a program that entitles you to claim the full- time education amount.

Post-doctoral fellowships are taxable.

Host: I received a scholarship and a bursary for an educational program and I’m eligible for the education amount. Can I claim any exemptions to reduce the total award that I have to include in my income?

Subject matter expert: Yes, you may be able to claim the scholarship exemption amount.

Host: What is a scholarship exemption amount?

Subject matter expert: A scholarship exemption amount is used to reduce your taxable income. The total amount of your award includes all scholarships, fellowships, or bursaries you received as a student relating to your enrolment in a program that entitles you to claim the full-time or part-time education amount. These amounts qualify for the scholarship exemption and may not have to be reported as income on your tax return.

Host: Is the scholarship exemption amount a set amount?

Subject matter expert: No, you must calculate your exemption amount.

Host: So how do I calculate my scholarship exemption amount?

Subject matter expert: To calculate the scholarship exemption amount, add all of the following:

  • the total of all awards you received that are related to a program of study for which you can claim the full-time education amount;
  • the tuition fees and costs incurred for the program-related materials for a program of study for which you can claim the part-time education amount;
  • the total of all amounts, where each amount is either each artists' project grant you received or the expenses associated with that grant, other than the ineligible expenses, whichever is less;
    and
  • whichever of these two amounts is the lesser $500 or the total of all scholarships, grants and bursaries that you received, including artists' project grants that exceed the amounts described in the first two bullets added together.

Host: Can you walk me through an example to make this easier to understand?

Subject matter expert: Good idea, Joe is going to university full time and he's enrolled in a program that is eligible for the full-time education amount.

The total of all his scholarships, fellowships and bursaries for the year was $2,000.

He was not enrolled in a part-time program eligible for the part-time education amount so that amount is zero.

He has not received an artist's project grant so that amount is also zero.

The first two bullets add up to $2,000. So, the lesser of $500 and the total of all scholarships, grants and bursaries that exceeds the amounts in the first two bullets is zero.

So in this case, Joe's scholarship exemption amount is $2,000. He has no income to report and therefore will report zero on line 130 of his return.

You have to include in your income for the year the total of all your awards (including artists' project grants) that is greater than your scholarship exemption as determined by this calculation.

Host: What if I am a part-time student? Is there anything I need to be aware of when I calculate the scholarship exemption amount?

Subject matter expert: For part-time students the scholarship exemption is limited to tuition fees and costs of program related materials, except if the part-time program is undertaken by a student entitled to the disability tax credit or a student who cannot be enrolled on a full-time basis because of a mental or physical impairment.

Host: If I'm a part-time student, is there an easier way to calculate the portion of my scholarship, fellowship, and bursary income that must be reported as income on line 130 of my return.

Subject matter expert: To calculate the portion of your scholarship, fellowship, and bursary income that you must report as income on line 130 of your return, go to the CRA webpage called "Part-time education amount." The link is included in the Related links for this segment.

Host: Can you walk me through another example?

Subject matter expert: Okay. Let's say that Peter received a total of $2,000 for his enrolment in a program that entitles him to claim the part-time education amount. His tuition fees and the costs of program-related material come to $1,200. He enters $2,000 on line 1 and $1,200 on line 2.

Next he enters on line 3 the amount from either line 1 or line 2, whichever is less. In this case he enters $1,200.

Now he will need to take line 1, which is $2,000 and subtract the amount on line 2, which is $1,200, which leaves $800. He will place this amount on line 4.

On line 5 he enters $500, which is the basic scholarship exemption.

Now, on line 6 he enters the amount from line 4 or line 5, whichever is less. In this case he enters $500. Next he adds lines 3 and 6, which in this case is $1,200 plus $500 to get a total of $1,700 and he places this amount on line 7. This is Peter's total scholarship exemption.

Line 8 is the amount of scholarship, fellowship, and bursary income that Peter must enter on line 130 of his return. To get this amount, he takes the amount from line 1, in this case $2,000, and subtracts the amount on line 7, which is his total scholarship exemption, in this case $1,700. His result is $300. So Peter's total scholarship, fellowship, and bursary income is $300. He will need to place this amount on line 130 of his income tax and benefit return.

Host: What about artists' project grants, are they taxable?

Subject matter expert: Yes they are. However, if you used an artists' project grant to produce a literary, dramatic, musical, or artistic work, you may claim the scholarship exemption.

Keep in mind though that this does not include artists' grants received for work completed as part of a business or employment.

Host: Are there any expenses that I can claim for artists' project grants?

Subject matter expert: Yes, you can claim travel expenses. Travel expenses include all amounts for meals and lodging while you're away from home in the course of your research work. You can claim fees paid to assistants and the cost of equipment, laboratory fees and charges.

Host: Are there any artists' grant expenses that I cannot claim?

Subject matter expert: You cannot claim personal living expenses while at your usual place of residence, expenses for which you can be reimbursed, expenses that are otherwise deductible when you calculate your income for the year, or travelling expenses for your spouse, common-law partner, children, or other third parties.

Host: If I received an artist's project grant, may I claim the scholarship exemption?

Subject matter expert: If you received an artists' project grant, whether separately from or in addition to other scholarship income, you may claim the scholarship exemption to reduce the total amount that you have to include in your income as scholarship income. You had to have used the project grant in producing a literary, dramatic, musical, or artistic work, but it can't be a grant received for work completed as part of a business or employment.

Host: Earlier you mentioned research grants. For tax purposes, what do you mean by a research grant?

Subject matter expert: A research grant is generally money you are given to pay for your expenses while carrying out a research project.

Host: How do I calculate my net research grants?

Subject matter expert: Calculate your net research grants by subtracting your expenses from the grant you received. In other words, the amount of your research grant minus any allowable expenses.

You report the net amount on line 104 of your income tax and benefit return.

Keep in mind that your expenses cannot be more than your grant. Also be sure to attach a list of your expenses if you are filing a paper return. No matter which method you choose to file your return, always keep your supporting documents in case the CRA asks to see them later.

Host: What expenses can I claim against my research grant income?

Subject matter expert: Expenses you can claim include

  • travel expenses, including all amounts for meals and lodging while away from home in the course of your research work;
  • fees paid to assistants;
  • the cost of equipment; and
  • laboratory fees.

Host: Are there any expenses that I cannot claim against my research grant income?

Subject matter expert: Yes Janice. Expenses you cannot claim include:

  • personal and living expenses, other than the travelling expenses mentioned earlier;
  • expenses that have been reimbursed, except when the amount reimbursed is included in the grant you received;
  • expenses that are otherwise deductible when you calculate your income for the year;
  • expenses that are unreasonable under the circumstances; and
  • expenses paid for you by a university, hospital, or similar institution.

More information is available in the following publications:

  • Income Tax Folio S1-F2-C3, Scholarships, Research Grants, and Other Educational Assistance; and
  • Pamphlet P105, Students and Income Tax.

The links are included in the Related links for this segment.

Host: If I'm a student enrolled in a program that is not eligible for either the full-time or part-time education amount or I have no artists' project amounts how do I calculate the amount that I should report on line 130?

Subject matter expert: If you are not eligible for the full-time or part-time education amount, and have no artists' project grants, report only the part of the post-secondary award that is more than $500 on line 130.

Host: Does this $500 tax-free amount apply if I received a prize or award from my employer?

Subject matter expert: No, prizes and awards you received as a benefit from your employment or in connection with a business are not eligible for the $500 tax-free amount.

Host: You also mentioned that payments for registered education savings plans are considered income. Are they taxable?

Subject matter expert: All amounts that are kept in a registered education savings plan, RESP for short, are not taxable. So in other words the student will not have to pay tax on money that is in their RESP as long as it has not been paid out to them.

An amount paid to the student from an RESP to help finance the cost of post-secondary education is called an educational assistance payment (EAP). When a student receives an EAP, a T4A slip is issued that shows the amount earned. The student must include this amount as income on his or her income tax and benefit return.

For more information on RESP's or EAP's, go to the CRA webpage on those topics. The links are included in the related links for this segment.

Host: Thank you Frank.

This concludes the segment called Sources of income, part of the CRA's Canadian Students and Income Tax video. Thank you for watching.

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