Those who have the least experience filing taxes are often the most apprehensive during tax season, but it doesn’t have to be a daunting task.
Whether a student, a full or part-time employee, an intern, a self-employed side-hustler or unemployed, young people have numerous opportunities to receive a tax refund from the government or lower their tax bill, but only if they file their taxes properly. There are tax credits and deductions specifically geared towards students and young people, as well as penalties and fees that can result from filing late, inaccurately or not at all.
To best position themselves to cash in on the benefits, Gen Z Canadians need to know what earnings and expenses to keep track of throughout the year, and what to do with their receipts and paystubs come tax time.
Emily Verrecchia, a tax expert at TurboTax Canada, recommends using software like QuickBooks online to easily create sales receipts or invoices to keep track of income as it is earned and get paid by clients faster. “The best part is you can also capture expense receipts with your phone and save to your records which you will need at tax time,” Ms. Verrecchia explains.
Taxpayers who don’t rely on a single employer for earnings need to keep track of their income in detail. For example, those who are self-employed, part of the gig economy or in the service industry are required to keep track of and report their own earnings, including gratuities. That goes for those with a serving job on evenings and weekends, or the self-starters running a clothing re-selling side hustle out of their bedrooms on Poshmark.
“You need to do your own due diligence and keep track of the tips you earn working different shifts,” advises Sandy Yong, a personal finance speaker and author of The Money Master: Inside Secrets On How to Make Your Money Grow and Stay Safe. “The benefit to that is it can help increase your RRSP contribution limit, and if you don’t report it, you may have to pay some interest and penalties.”
Ms. Yong explains that accurate reporting helps ensure access to a Registered Retirement Savings Plan (RRSP), which can help Canadians save even more at tax time.
“The money you contribute to your RRSP and the investments in the plan are sheltered from taxes until you start withdrawing the money,” explains Verrecchia. “You can also borrow from your RRSP funds to buy your first home or pursue that post-secondary education you’ve been eyeing.”
In addition to an RRSP, those who want to save money to use sooner rather than later can also put away money, tax-free, by depositing some of their savings into a TFSA.
“A Tax-Free Savings Account, or TFSA, is a kind of savings account that allows you to contribute up to $6,000 for the 2022 tax season and up to $6,500 for 2023 tax season after-tax income without having to pay taxes on any of the interest you earn,” says Ms. Verrecchia. “You can withdraw from a TFSA at any time without having to pay a penalty, and any unused contribution room is carried forward to the next year.”
Ms. Verrecchia adds that any Canadian resident over the age of 18 with a valid social insurance number and TFSA room can open a TFSA account. Any money added to a TFSA can be invested and those investments are exempt from taxes. The TFSA limit is the same for every Canadian, unlike RRSP contribution limits, which are based on income earned.
Just as it’s important to keep records of your income, you need to keep track of your eligible expenses. For example, Canadians who relocate at least 40 kilometres away from home in order to work or attend a postsecondary institution can also claim moving expenses – such as gas money, insurance, moving van rentals and hotel stays – on their taxes.
“You can also claim medical expenses, whether it’s for medication, prescription glasses or dentist visits,” says Ms. Yong. “If you make donations to qualifying charitable organizations, be sure to keep your receipts, and you may be able to claim a tax credit for a percentage of your donation.”
Each of these eligible expenses ultimately serve to reduce your “taxable income,” which is the number the Canada Revenue Agency (CRA) uses to determine what Canadians owe in taxes, if anything.
Savings accounts and eligible expenses aren’t the only ways Gen Z Canadians can save money on their taxes. You may also be eligible to receive certain tax benefits, even if you don’t owe any taxes. For example, the Canada Workers Benefit offers tax perks to low-income workers, while student loan recipients may be able to claim the interest on their loans as a non-refundable tax credit.
“Tuition makes up a big portion of a students’ expenses, and qualifying students can claim the tuition tax credit,” adds Ms. Verrecchia. “If you don’t know about these tax credits and deductions, and don’t claim them, you could miss out on money that you may be entitled to. The tuition tax credit can also be transferred to a parent, grandparent or spouse and may be carried forward by the student.” What’s more, TurboTax also automatically searches over 400 credits and deductions, so you get every dollar back.
Tempting as it may be to rely on mom and dad for assistance, Ms. Verrecchia says it’s important for young Canadians to file their taxes themselves before their financial situation gets more complex to keep them accountable. This can help establish healthy financial habits that can set them up for a prosperous future.
To help young Canadians get a leg up, TurboTax is offering its services to Canadians 25 or under for free until March 31 – whether they do it themselves or get some help from a tax expert.
“No matter your tax situation, TurboTax has you covered every step of the way,” says Ms. Verrecchia. “We’ll help you get your taxes done right, whether you do your taxes by yourself, have an expert answer questions along the way and review your return before you file, or meet with an expert who will do them for you from start-to-finish.”
*For tax year 2022 products only. Filing must be completed by March 31, 2023, subject to change. Age is determined as of December 31, 2022. If filing a spousal return, both spouses must be 25 or under as of December 31, 2022. Excludes Premium Pack.
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Content was produced by The Globe Content Studio.