8 Things Every Teen Should Know About Money and Taxes

Taxes come in a variety of forms. Consumption taxes, which include sales taxes like the GST, HST, and/or PST, depending on where you live, and other charges embedded in the price of certain items, such as gasoline. 

Property tax on any homes and land you own is typically paid to local governments, while some jurisdictions also levy land transfer taxes when you buy real estate. 

And then there's income tax, which comes out of your employment income. For many Canadians, income tax is the largest tax bill they'll face in any given year.

Understanding how income tax works is a key part of financial literacy. Let's look at a few more tax- and money-related things that are important to know as you start earning and spending your own money.

1. How to read your pay stub

With more Canadians getting paid electronically, the days of ripping open your first paycheque and puzzling over the attached pay stub may be a thing of the past, but the pay stub itself isn't going anywhere.

The pay stub outlines how much you earned in your latest pay period (typically every two or four weeks), your total gross income for the year, the taxes you paid, and your net income for both periods, as well as other deductions and company-paid benefits, such as pension contributions and health insurance coverage.

Usually, your employer will calculate how much you must pay in income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) per paycheque. They will withhold those amounts and submit them directly to the government on your behalf. It's worth noting, however, that if you're under 18, you're exempt from contributing to CPP, at least until the month after your 18th birthday.

These amounts are subtracted from your gross income before you're paid. But they're just an estimate. When you file your taxes, you'll find out the final tally of how much you owe or how much you'll get back.

That's right: you could get a tax refund—for example, if your tax credits, deductions, and/or tax withheld from your paycheques add up to more than your tax bill.

2. How taxes work for teens and young adults

When it comes to paying income tax, the CRA doesn't distinguish by age, but it does consider how much you make. In practice, that means many teens and young adults pay very little—if anything—because they tend to have lower incomes and qualify for more deductions and credits.  

If you're earning income in Canada, you should file taxes every year to access things like the Canada Groceries and Essentials Benefit (if you're 19 or older) and potential tax refunds.

“Not filing taxes can mean missing out on government benefits,” says Santos. “Even if you earn just a modest amount from babysitting or an after-school job, it's worth filing a tax return.”

The amount of income tax you are subject to depends on your total income and where you live, less any deductions and credits that may apply to you. 

Canada uses a progressive tax system, which means your income is divided into different chunks or “tax brackets,” with income in each bracket getting taxed at a slightly higher rate.

A common tax myth is that earning more could leave you worse off because your higher income is taxed at a higher rate. That's not how the tax system works. 

Whether your income is $50,000 or $500,000, both taxpayers pay the same amount of tax on that first $50,000 of income. You'll only pay more tax on the portion of income that falls into a higher tax bracket, not your entire income.

3. How tax credits and deductions work

So, now you know that your employer withholds income tax from your paycheques and sends it to the government. But there's more: every year, you file a tax return, and you can claim any tax credits and deductions that apply to you. 

Both of these reduce how much tax you have to pay, but they work differently.

	Tax deductions	Tax credits
How they work	Tax deductions are subtracted from your income, lowering your taxable income	Lower the amount of tax you owe
Examples	RRSP contributions, donations to registered charities, self-employed business expenses	Tuition Tax Credit, Canada Workers Benefit, Medical Expenses Tax Credit
Good to know	Tax deductions are used to reduce your income before any credits are applied.	There are two types of tax credits: Non-refundable: These credits reduce your tax payable to zero, but that's it, even if you have more credits to claim. Refundable: These credits also lower your income, but any leftover credits get paid back to you as a refund, even if you have a low or no income. To access that money, you need to file your tax return.

One key non-refundable tax credit is the basic personal amount, which is $16,452 in 2026. That means you don't pay federal income tax on your first $16,452 of income. (The provinces and territories also have basic personal amounts, meaning you don't pay provincial/territorial income tax on income up to those amounts.) 

Another common credit for students is tuition and education amounts, which you can claim on your own taxes or transfer to a family member. All provinces and territories, except Alberta, Ontario, and Saskatchewan, also have provincial tuition credits.

4. Why open a high-interest savings account?

If you've got a bit of money in the bank, it might be time to open a high-interest savings account (HISA), in addition to keeping your childhood bank account for everyday banking. 

HISAs often earn more interest, so your money can grow faster. (Think of interest as a fee your bank pays you for borrowing your money.)

Better yet, you can earn compound interest. What does that mean? Here's an example. 

Let's say you have $1,000 in a high-interest savings account that pays 2.0% interest monthly. In one month, you earn $1.67 in interest, so your balance rises to $1,001.67. The next month, the interest is calculated not on $1,000, but on $1,001.67—and so on, month by month. It's a difference that really adds up over time.

One important note: any interest you earn within a high-interest savings account is considered taxable income and should be reported on your tax return.

5. Why use a TFSA for saving money

Birthdays are always special, but there's a reason to celebrate reaching the age of majority in your province or territory: you'll be eligible to open a tax-free savings account, or TFSA. It's one of many different registered accounts designed to help Canadians save.

A few key facts about the TFSA:

• The TFSA is a kind of “bucket” account that can hold anything from stocks and bonds to GICs and cash.
• Any interest, dividends, capital gains, or other earnings inside a TFSA are tax free.
• Since earnings are tax free, this account is ideal for long-term investments, especially for young people, as you can take advantage of compounding over many decades.
• You automatically get TFSA room every year starting when you're 18 (even if your province or territory makes you wait until 19 to open the account). To start contributing, open a TFSA at a financial institution or an investing firm. (You must be a resident of Canada and have a Social Insurance Number (SIN).)
• The federal government announces a new contribution limit every year ($7,000 in 2026). If you don't use up that room, it carries forward to future years.
• You can withdraw as much as you want from a TFSA at any time, but there are rules for how and when you can put money back.

6. The basics of RESPs

You might already have a Registered Education Savings Plan (RESP) that your parents or another adult opened for you.

These accounts are designed to help students save up to $50,000 for a child's post-secondary education. Money and investments held inside an RESP aren't taxed until they're withdrawn, and the plan can hold a variety of asset types, such as GICs, bonds, mutual funds, and cash. 

Another advantage of an RESP is that the federal government offers a 20% matching grant, called the Canada Education Savings Grant (CESG), worth up to $500 per year and a lifetime total of $7,200—plus any interest or investment income those dollars might earn. 

(If your RESP doesn't receive the maximum CESG amount in a given year, your family can catch up by making more contributions in the following years, until the end of the calendar year you turn 17.)

Lower-income families can receive additional grants—the Canada Learning Bond—without making any personal contributions, but they must first open an RESP.

If you don't have an RESP yet and you plan to attend college, university, or trade school in the future, you may want to ask your parents or legal guardian about it. You can't open one yourself if you're under 18, but any adult can open one and name you as the beneficiary.

You can start RESP withdrawals when you begin your post-secondary education. Some withdrawals are tax free and some are taxable—though, as a student, you probably won't pay much, if any, income tax.

7. How to do your own taxes

It's never too early to learn to file your own taxes—and it's actually a good idea to start early, since your tax return is likely fairly simple. Plus, tax-filing software makes it pretty quick and easy. It will walk you through the process and suggest what information to include.

The basic process is:

1. Gather relevant forms, slips and information, like a T4 from your employer, receipts for self-employment expenses, and tuition receipts.
2. Create an account on a Canadian tax-filing platform such as TurboTax and fill out the T1 personal income tax form.
3. Use the software to “file”—that is, send—the return to the CRA. The CRA will review your return and send you a Notice of Assessment.
4. Review the Notice of Assessment to make sure it's accurate, and make any payments required. If you're getting a refund, consider setting up direct deposit to your bank account—it's faster than cashing a paper cheque.

8. How tax applies to side hustles and creator income

Income tax is not limited to capital-J Jobs—any income you earn, whether you're self-employed or making money from side hustles, creator gigs, is taxable. All of that needs to be included on your tax return.

Even if you started your YouTube channel or TikTok account as a hobby, once you start receiving ad revenue or you score a brand deal, you have to start reporting that income on your tax filing. 

All of this needs to be tracked and logged for income tax purposes. Make sure to save receipts and track business expenses, too, as they can help lower your tax payable.

Time is on your side

Remember that example on compound interest above? Financial literacy works in kind of the same way. The more you learn, the more that knowledge expands how well your money can work for you.

Make a habit of filing your own taxes, tracking your income and expenses, and saving and investing as much as you can and you'll have a head start on financial success throughout your life.