There is a first-time for everything from the first time you ride a bike to the first time you were left home alone. While sometimes new things are fun, other times they can be quiet overwhelming. For many young Canadians, filing their tax return for the first time can be one of these overwhelming experiences. Having a basic understanding of the tax filing process, deductions, credits, and more can definitely ease the process to a certain extent. Here are a few facts to help out all the first time filers out there:
TIPS FOR FILING YOUR FIRST TAX RETURN
- There is no particular level of income required to start filing your taxes in Canada. You can start filing taxes right from your teenage years whether you have significant reportable income or not, as long as you have a Social Insurance Number (SIN).
- Typically people think that they only have to file a tax return if they receive a tax slip such as a T4 from an employer. However, the income you make from babysitting, shoveling snow, pet sitting, housesitting, or by doing your household or neighborhood chores does qualify as reportable income. Reporting this income provides you with access to credits and deductions that you can claim.
- In terms of credits, the Canada Revenue Agency (CRA) provides two types: refundable and non-refundable. Non-refundable credits can only reduce the amount of taxes you owe to zero while refundable credits can be cashed. For example: If the tax liability of a taxpayer is $1,000, and they have a non-refundable credit of $500, they can deduct this $500 from the $1,000, and would owe only $500 as their tax due. Now, if this taxpayer had an additional $700 of refundable credits, they could further minimize their tax liability to zero, and would receive a $200 refund from the CRA. However, if the taxpayer had non-refundable credits of $1,100 and no refundable credits then the taxpayer’s tax liability would be reduced to zero. The remaining $100 would be unaccounted for since it is non-refundable and it cannot be carried forward in the future years.
- You should pay attention to the credits available while studying. Expenses incurred for tuition, interest paid on government issued student loans, and various other school-related expenses can either be claimed as deductions or credits. Unused tuition and education credits may be transferred to your parents’ tax return.
- Filing your returns from a young age also makes you eligible to deduct retirement savings, such as contributions to a Registered Retirement Savings Plan (RRSP). You may think you are not interested, or you may not have enough money to start saving right away but this unused RRSP limit can be used in future years. By filing tax returns from a young age you will be accumulating RRSP deduction space that will allow you to save more towards retirement, and reduce your taxable income.
- Always maintain records in the form of receipts, invoices, or any other document, to validate the expenses/payments/fees that you wish to claim a deduction or credit for. Even if your income may be insignificant and below taxable levels, the CRA will be doing a thorough review of the filed tax return, and the deductions and credits claimed.
That being said, it is always advisable to consult a tax professional even if your tax return is a basic return with no complications. An accountant can inform you of any potential tax saving opportunities which you may not be aware of, and also put you on the right track for future tax return filings when you may have higher levels of income subject to taxes.
AG TAX LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
