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This article was published 5/4/2013 (1630 days ago), so information in it may no longer be current.
It's the annual rite of spring for adults, a fever of a different kind that isn't necessarily spurred by warming temperatures and blooming flowers. With the melting snow comes tax time in Canada, and for those who are filing for the first time, dealing with all the numbers, receipts and forms may be bewildering.
A recent survey by Intuit, the maker of online tax filing program TurboTax, found 46 per cent of millennials — those born between 1980 and 1995 — have never filed because they're afraid of making mistakes. About four in 10 don't file themselves because they think they'll miss out on deductions, and almost a third of them rely on their parents for tax advice.
Nazima Rayani, spokeswoman for TurboTax says despite this age group being very tech-savvy, most don't even plan to file on their own using tax-preparation software.
"Only about a third of them plan do their taxes themselves this year using software like TurboTax," she says.
Given that a third of young adults may rely on their parents for help and another third relies on tax software, does the other third tackle their taxes the old-fashioned way: using a pencil, paper and calculator to tame the bulky T1 in its paper form? It's more likely a good portion of them aren't filing at all.
After all, they probably have little to no income and pay no tax, so what's the point?
"Everyone should learn to do their own tax return," says Evelyn Jacks, author of Essential Tax Facts and dozens of other financial books and the founder and president of the Winnipeg-based Knowledge Bureau.
Regardless of how you choose to do it, Jacks says filing a tax return serves two goals even if you don't have much income to report.
"First, it reconciles the amount of taxes properly owing after all deductions and tax credits have been applied to your situation with the taxes you have submitted during the year through withholdings at work."
Often more importantly for young adults, filing a tax return sets up tax-efficient savings for your future.
"That is, you'll establish your RRSP contribution room, the correct amount of your Canada Pension Plan premiums and carry forward provisions available for unused claims of moving expenses, tuition, education and textbook amounts, medical expenses and charitable donations and in the case of your non-registered investment activities, loss carry-backs or forwards. "
That's a lot to consider to be sure.
If the first step is to jump in and do it, the second is to get organized.
You'll need to gather your T-slips — namely the T4 reporting employment income — if you're working and receiving income. That comes in the mail from the government, but if you're self-employed, you will have to report that income, too, on line 101 of the T1 tax form.
Not to worry, you're likely not to end up with a tax bill if you report a few thousand dollars from cutting lawns, babysitting or shovelling walks. Every taxpayer can claim a basic personal amount — $10,822 at the federal level and $8,634 at the provincial level. As long as you earn less than that, you won't pay income tax. In fact, if you earned income that had taxes deducted from it during the previous year, and you earned less than those amounts, you may be entitled to a refund, says certified general accountant Ryan Rawluk.
"Furthermore, if their employment income is below $3,500, they will get their CPP refunded and below $2,000 they will get their EI refunded," says the partner at Osborne Accounting Group in Winnipeg.
Those are three big reasons to file even if you don't have much income, he says.
Starting your RRSP deduction room is another benefit of filing.
"If you have some employment income, but you're not entitled to a refund and you don't owe any money in taxes, just filing will start building up your RRSP room, which may come in handy down the road, even though RRSPs aren't that important at 18, 19 and 20 years old."
The name — registered retirement savings plan — says it all about the purpose of an RRSP. Obviously, retirement is a long way off for young adults, and so, too, is the time when they may want to even use contributions to help reduce their taxable income. If you've been making contributions on your own or through a work plan, you might want to consider carrying those contributions forward until you earn a higher income. This will lead to greater tax savings and a bigger refund.
In the meantime, you can find tax savings elsewhere, using credits.
Among the most valuable are those for post-secondary education.
"A lot of these kids are going to school so they have tuition either being paid by them, through student loans or by their parents," he says. "When they're in school, they're going to receive a T2202A from the school and that is what they need to file their taxes with."
For federal taxes, post-secondary students can claim up to $10,000 a year in tuition, including books and other related costs, to receive a tax refund of $1,500, but the catch is they need enough income to pay enough taxes to get the refund. Students can carry forward these credits until they are paying enough taxes to receive the credit, or they can transfer up to $5,000 a year to their parents or working spouse so they can reap some tax savings.
At the provincial level, students can also claim tuition up to $10,000 (with $5,000 also transferable to a parent or spouse) annually for a maximum provincial tax savings of $1,080, Rawluk says.
But even better provincial tax savings exist for Manitoba students.
"Post-secondary students still in school can claim a five per cent advance on their tuition called the Manitoba Tuition Fee Income Tax Rebate Advance."
The maximum rebate is $500 per year on up to $10,000 of tuition, and you don't need to be in a taxable position to receive the money. Upon graduating, you can then apply for the Manitoba Tuition Fee Income Tax Rebate, which provides a return of 60 per cent of tuition costs to a maximum of $25,000 for graduates who work in Manitoba.
Graduates who went to school out of province are also eligible as long as they earn their money here.
New tax filers have other credits that can help reduce their taxes or put money in their pocket such as the GST Tax Credit and the Working Income Tax Benefit.
If it sounds like a lot to absorb, you're not alone. The tax system is complicated and there's always a chance of making a mistake, but that's OK, says Jacks.
"Tax knowledge is cumulative, so don't worry if you don't know everything," she says. " Errors and omissions can be corrected — up to 10 years back for most federal provisions, so when you become aware of something you may have missed, let CRA (Canada Revenue Agency) know. "
That said, don't be afraid to seek advice from your parents, a tax professional or even the CRA.
"There is no such thing as a stupid tax question," she says. "Research, read and learn to take control — it will make you richer and secure your future."
One last thing: The tax filing deadline is April 30.
Know your Ts: T forms are the standard reporting statements for filing taxes in Canada. There are easily more than a hundred. In fact, T forms aren't the only reporting paperwork out there for taxes. More than half the letters in the alphabet can refer to taxation forms in Canada. For the most part, however, you really need to know about the following when preparing your taxes:
T1: Consider this the master plan tax form. It's the final form that you send to the government upon filing and includes all your vital taxation information for the year.
T4: This is your official income slip for the year for all reported work earnings. It will include income, income taxes paid, CPP contributions, Employment Insurance contributions and vacation pay.
T3: This is a statement of income from a trust. If you own mutual funds outside of an RRSP, RESP and TFSA, any income earned from those funds will be reported here.
T5: This is a statement of income from your savings account and any investments not held inside a trust—AKA mutual fund. This is income earned from interest, dividends and capital gains from stocks, bonds, GICs and other investments.
Other important credits and amounts for young adults:
GST Tax Credit: This is a refundable tax credit, meaning you don't need to have paid taxes to receive it. A quarterly payment available to low income Canadians, it can provide up to $404 a year. Canadians 19 and older are eligible. Accountant Ryan Rawluk says to get the benefit starting at age 19, you need to file your taxes the year before. "If you are going to turn 19 before April of 2014, you should file a tax return now and apply for the GST credit," he says. "By doing that, when you do turn 19, you'll start receiving your GST credit, which is $66 for people with zero income every three months."
Working Income Tax Benefit: Also a refundable tax credit, the federal program aims to help low income earners. The less income you earn the more of this benefit you receive. "For a single person, the credit starts at $970 and it starts getting ground down at about $11,011 of income," he says. "It's completely lost at $17,478." The amount is higher for families with dependents, and it is only available to students enrolled in a program for less than 13 weeks a year.
Manitoba Education Property Tax Credit: This provincial credit can earn you a $700-refund, but it's only available if you're homeowner or a renter, and you have to be careful that no one else in the residence claims the amount. It can't be split either, Rawluk says. "Otherwise, CRA may reject both claims." So if you have a roommate, one of you can claim it and then pay the other $350.