There comes a time in every parent or guardian’s life when their teenager decides to get a part-time job. But before jumping into why your teenager should file a personal tax return, let us start with the most common question.
At what age are you required to file a tax return? There is no minimum age requirement. If you are earning income, whether you are 7 or 70 years old, you are required to file a personal tax return. Income for a teenager might include interest earned on a savings account, working at the local grocery store, babysitting for family or friends, cutting the neighbour's lawns, busing/hosting/serving at a local restaurant, or working in a family business. While some of these jobs might not issue a T4, like babysitting, a business will (or at least they should).
Now that you know there is no minimum age to file, here are 5 reasons your teenager should file their taxes.
- Basic Personal Amount. We should all know that when we make less than approximately $14,000 (federally) and $11,000 (BC), you will not pay any personal tax. Most part-time students/teenagers do not make more than this so it is unlikely they will pay tax. However, when the employer does the payroll, they might deduct CPP, EI and/or taxes so by filing a personal tax return, your teenager can get a refund of these amounts if they are not required to pay them.
- RRSP Contribution Limit. The contribution limit increases when you have earned income (i.e. employment income). When you file your taxes, the contribution limit grows. Now I'm not recommending that your teenager makes any RRSP contributions when their income is this low but growing the contribution limit will help them years down the road when their income is much higher.
- GST Credit. When they turn 19, they could be eligible for the GST Credit which is paid quarterly, 4 times a year. The credit is based on their earnings so if they make too much, they will not qualify, but that is not often the case for teenagers with part-time jobs. But there is also a timing effect to this credit. For example, if they were 18 in April 2022 when they filed their 2021 personal tax return, they would not have been eligible for the GST Credit however if they turned 19 a couple months later, the GST Credit would apply. Unless they filed their 2021 personal tax return, CRA would not know if your teenager was eligible or not so this requires the personal tax return to be filed.
- Eligible Dependent Credit. If you are a single parent of a child(ren) under 18 years of age and they have a part-time job, this credit needs to be reduced by their net income. If you have more than one child and one doesn’t work, then this is not likely an issue. But if you don’t have more than one child and they have a part-time job, then there could be an issue if they don’t report their income. CRA does slip matching so if your child receives a T4, CRA will catch this and it is always better to file the correct amounts instead of receiving a CRA bill for underpaid taxes or an overpaid tax refund.
- Other Credits & Benefits. As we saw during COVID, anyone who made over $5,000 and was not working because of COVID was eligible for the CERB benefits. With ever-changing political parties, none of us can predict the future of tax credits and benefits that might come and go so it is always best to file your tax return to ensure you have access to what you are eligible for when new ones are introduced.
Although not a top 5, it certainly is another important reason…raising responsible teenagers, the future leaders of our communities, includes teaching them to file their taxes on time every year. By knowing this life responsibility, they will be far better off in their journey to being financially literate.
And don't forget, when they are preparing and filing their taxes for the first time, make sure they set up their CRA MyAccount so they can access their personal tax information 24-7 plus it is mandatory as of May 2023.
***This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice.