Taxes for Teenage Income | Do I need to File a Tax Return?
Now that you’re working, you may be wondering whether you have to pay taxes. In this article, we are going to discuss taxes for teenage income in Canada.
Before we proceed, here’s what you need to know about taxes and filing taxes in Canada!
The Canada Revenue Agency (CRA)is in charge of income tax administration in Canada. The fiscal year in Canada runs from January 1 to December 31.
If you owe income tax for the preceding calendar year, you must pay it by April 30. Late submissions will be permitted however, an interest penalty may be imposed.
If you work in Canada, your employer will subtract income tax from your paycheck and send it to the CRA. Your employer will ask you to fill out Form TD–1 so that the right amount of income tax can be deducted from your salary.
Filing tax returns is easy and always advisable. Most teenagers, however, do not make enough money to file a tax return. Anyone earning less than the minimal personal credit (about $13,000) is often exempt from filing a return.
Although it is not mandatory, teenagers who are employed should still submit their annual tax return.
What are the Benefits of Filing Tax Returns?
- You might be eligible for a tax refund
If you have income tax, Employment Insurance (EI), or Canadian Pension Plan (CPP) deductions and did not earn a lot of money, you may be eligible for a refund. Every year, taxpayers are allowed to earn a certain amount of money tax-free.
The Consumer Price Index, which is a valuable measure of changes in consumer prices in Canada over time, is connected to this personal amount. It has risen slightly each year in the past. If your employer held back some tax money, you may be eligible for a tax return.
- Allows for the building of a registered retirement savings plan (RRSP) room
The contribution room in a RRSP is computed using a percentage of earned income reported to the CRA each year. The contribution room for the following year grows for every year that earned income is reported.
As a young individual declaring income early in life, you can have a head start on increasing your contribution room. You can accumulate a few thousand dollars of contribution room after a few years of earning income below the baseline personal amount.
When you begin working full-time and earning more money, you can use the extra RRSP space to reduce your net income by acquiring an RRSP and lowering your tax cost.
- You may be eligible for benefits
When you file a tax return as a teen, you are added to the CRA’s database. If you filed a return the previous year, you will be immediately evaluated for the goods and services tax/harmonized sales tax (GST/HST) credit after you turn 19.
The GST/HST credit is a tax-free quarterly payment that helps low- and moderate-income people and families offset the GST or HST they pay. Payments from provincial and territorial programs may also be included.
- You can establish tuition and education credits
You will get credit on your taxes for any money you paid in tuition. If you don’t earn enough money to get the credits while still in school, you can carry them forward to another year or you can transfer them to your parent. By submitting taxes, you are establishing these credits by acknowledging the tuition you’ve paid.
- May benefit you when applying for a loan or credit card
For young people, income tax rules, regulations, and processes can be complicated and difficult to comprehend. Learning how to prepare one’s own income tax return can undoubtedly lead to other essential discussions about budgeting and saving.
Talk to a professional about your situation, and when you’re ready you can learn to submit your own taxes to save some money.
By: Robert Puharich | December 24, 2021 |