If your teen has a part-time job, there are benefits to them filing a tax return with the Canada Revenue Agency (CRA). After all, learning how to prepare your first tax return is an important skill when it comes to financial literacy for teens. While it might feel like a daunting prospect, they don’t need to know their capital gains from their depreciable property in order to file a tax return.
We spoke with Judith Bailey, a Team Lead and CPA with TurboTax, who shared some tips and tricks to help teens prepare their first tax return.
Do under 18 need to file taxes in Canada?
Regardless of age, Canadians are generally required to file a tax return if they earn an amount of money that exceeds the basic personal amount. For the 2023 tax year, that amount is $15,000. “Usually a teenager has a summer job or casual work; if they earn less than that they aren’t going to be required to file,” says Bailey.
Bottom line: if your teen earns less than the basic personal amount, they’re not required to file a tax return.
What are the advantages of filing a tax return as a teen?
Maybe your teen doesn’t need to prepare a tax return, but that doesn’t mean they shouldn’t. “There are huge advantages to filing a return as a teen,” explains Bailey. Here are some reasons why it may be worthwhile for teens:
They may get a tax refund
“One of the biggest reasons to file a return is you may be entitled to a refund,” Bailey says. Anyone earning under the $15,000 threshold won’t have any tax payable, but your teen may have had EI (Employment Insurance) and CPP (Canada Pension Plan) contributions automatically deducted by an employer. The reason for this is an employer doesn’t know how much your teen will earn in a year. At the end of the year, have your kids look at their total earnings and any common tax deductions. “If your teen had deductions made and they filed a return, they could be entitled to a refund,” explains Bailey.
They can build up their RRSP contribution
Bailey says the second biggest reason why teens should file a tax return is to build up their RRSP (Registered Retirement Savings Plan) room. While most 15-year-olds aren’t likely to be saving for their retirement, they can still start planning for it. “Whenever you file your income tax return, you’ll be able to allocate 18 per cent of that year’s income towards next year’s RRSP contribution room,” explains Bailey. That means if your teen makes $1,000 one year, they’ve built up a $180 RRSP room. “So if you file taxes when you’re 16, by the time you’re 30, you’re going to have built up 14 years worth of room,” says Bailey. But if your teen waits until their mid-20s when they land their first real job, they’ll have lost out on all that room.
They can practice filing a tax return
Preparing a tax return is a life skill just about everyone has to learn at some point. “The earlier you file your return, the simpler it’s going to be,” says Bailey. Which is why learning to file a return where, say, your teen made $500 over the summer is probably going to be the simplest return you’ll ever do. This way, kids begin to know the basics of a tax return. “Then, each year you do one, it might be a little more complicated, but you’re learning a little bit more as you go,” explains Bailey. She says it’s better to learn now, rather than waiting until they are in their twenties and might also have additional considerations, such as deducting donations or moving expenses to consider. “It’s like learning to ride a bike, the earlier you can do it, the better,” she says.
They’re registered with the CRA
Another reason why teens should file their taxes is they’ll then be set up on the CRA system. “That way, when they turn 19, they’re automatically eligible for the HST/GST credit,” says Bailey. “As long as you file your return as well.”
It could help boost your family tax return
If your teen files their taxes and they have medical expenses, you can pool your medical expenses and have one person (usually a parent) claim them all together. This may help lower your taxes.
In addition, if your teen attends post-secondary school and receives a tuition slip, they probably don’t need to claim the credit, unless they’ve made enough income. Instead, your teen can transfer that amount over to a parent or guardian to use as a tax credit instead.
Read more: Guide to 2023 Tax Deductions for Families
What do teens need to file their taxes in Canada?
Now you know why there are perks to your teen filing a tax return, here’s a checklist of things your teen could need when filing their tax return. Depending on their circumstances, they may need all or some of the following:
- Personal information—including their Social Insurance Number (SIN).
- T4 income slips—your teen should receive a T4 from each employer.
- A total amount from any cash tips or casual cash–in-hand work—teens should keep track of these amounts throughout the year.
- T2202 Tuition and Enrollment Certificate, if they’re in post-secondary education. They may also be able to claim moving expenses for school, such as flights.
- T5 slip, if your teen has earned income over $50 on any investments.
How to file your child’s taxes for free
Your teen doesn’t need to hire an accountant to file a return. Here’s how they can file their taxes for free:
NETFILE
NETFILE is an electronic tax-filing service available through the CRA. It will let your teens do their personal taxes online free of charge.
Benefits of filing your taxes online include:
- An immediate confirmation from the CRA that their tax return has been received.
- No need to send in receipts, unless requested at a later date.
- A refund as quickly as two weeks, deposited directly into their bank account.
TurboTax Free
TurboTax Free is a zero cost, simple-to-use software that’s ideal for simple tax returns. The software is free to use and comes with features such as an auto-fill feature to import tax slips and software that will take care of the math for you.
Pay-what-you-want tax software
There is other tax software available in Canada that offers a pay-what-you-want model. Visit the CRA for a list of providers.
The biggest takeaway when it comes to taxes for teens? There isn’t much of a downside to having your teen file a tax return. So, why not? Not only are they learning about important tax terms and an essential money skill, but they just might have money coming back to them in the form of a refund.
Taxes and financial literacy don’t need to be complicated for teens
Mydoh is a great way to introduce your children to important financial literacy topics like taxes, the basics of budgeting, saving and more. It’s an interactive mobile app and Smart Cash card designed to help kids learn real-life money skills.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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