The idea of filing a tax return may seem a bit far-fetched to the students in your family, but many students and their parents don't understand that even if they have no earnings, they may be getting money back from the Canada Revenue Agency (CRA).

Young adults and teenagers at least 18 years old are entitled to tax credits, even when they have no income and owe no taxes. Those credits mean free money in the form of refunds from the CRA — but only if they file a return. This is a guide for you and the students in your family that can help them save on taxes and perhaps get paid by the CRA, even if they are unemployed.

Students must file an income tax return if they:

  • Owe taxes;
  • Worked last year; or
  • Have not paid back all the money withdrawn from a Lifelong Learning Plan.

But even if they don't have to file a tax return, it's a good idea if they:

  • Want to apply for a tax refund;
  • Are eligible for GST/HST credits;
  • Want to carry forward or transfer unused tuition credits; or
  • Want to report income that will initiate contribution room for a Registered Retirement Savings Plan (RRSP).

Every February, schools issue tax slips to all registered students. These slips prove they are students and paid tuition, that entitles them to tuition tax credits and an education amount, which varies depending on whether they are full-time or part-time students.

Unused tuition credits can be transferred to a spouse or common-law partner, a parent or a grandparent. They can also be carried forward, so you can receive some large tax refunds in the first few years you start to work full-time.
If you are attending school outside Canada, in order to claim education-related tax credits you must have the institution complete and certify one of three forms, depending on your status:

  • Tuition, Education, and Textbook Amounts Certificate — University Outside Canada;
  • Tuition, Education and Textbook Amounts Certificate-- Commuter to the United States; or
  • Tuition Fees Certificate — Educational Institutions Outside Canada for a Deemed Resident of Canada.

A tuition tax credit may be claimed for some courses taken outside Canada, if:

  • The courses are full-time and lead to a degree, not just a diploma;
  • The university is recognized by a nationally accepted accrediting body of its country; and
  • The courses last at least 13 consecutive weeks.

The credit can be claimed for online courses outside the country but not for international correspondence courses.

Here are more reasons why it makes sense for students to file income tax returns:

Tax Refunds - Residents of Canada are entitled to a basic personal exemption of $10,382 for 2010. That means you can earn up to that amount before you owe any taxes. If you held a job and your employer deducted federal and provincial income taxes, the money will be returned to you as a refund when you file a tax return.
The April 30 tax filing deadline does not apply if you are expecting a refund. In that case you can file anytime, but keep in mind that the refund owed is money you are lending to the federal or provincial government, not money in your pocket to spend or invest. Also, the CRA is not going to remind you that it owes you the money if you don't file.

The GST/HST Credit - If you did not work or earned low or moderate income, you are entitled to receive quarterly payments aimed at helping you offset all or part of the excise taxes you paid during the year. The payments are made in July, October, January and April.

Scholarships and Other Money Sources - If you received scholarships in 2010 for post-secondary programs that consisted mainly of research, you are eligible for a scholarship tax exemption and the education amount only if they lead to a college or CEGEP (Collège d'enseignement général et professionnel) diploma, or to a bachelor's, master's, or doctoral (or equivalent) degree. Post-doctoral fellowships and research grants are taxable, but you can deduct expenses for travel, lodging and fees paid to assistants.

If you receive a scholarship, bursary, or tuition for post-secondary education from the employer of a family member, you will receive a T4A slip from the employer. This income is taxable to you. When scholarships, bursaries, or tuition are provided for elementary or secondary school, the fair market value (FMV) of these benefits is a taxable benefit to the employee.

Textbook and Other Expenses - A tax credit is available for books, student fees, parking and equipment.

Student Loan Interest - You can claim a tax credit for interest paid on qualifying student loans, which are borrowings under the Canada Student Loans Act or similar provincial legislation.

Moving Expenses - You can claim certain moving expenses if the move to or from school is at least 40 kilometres. The deduction will be limited to the income earned in the new location, which can include taxable research grants or employment. In some cases, it might be a good idea to take a part-time job so that you can take the deduction.

Child Care Costs - Students or their spouses or common-law partners may be entitled to claim a child care deduction when at least one of them attends school full-time or part-time.

Public Transit - If you're taking transit to and from class, keep receipts or passes so you can claim the public transit tax credit.

There are many benefits for students filing income tax returns, but some of the paperwork is complicated. Consult with your accountant to help ensure you claim all you are entitled to.