All individuals earning income in Canada should file a personal tax return, regardless of their age. Essentially, all that is needed to complete an income tax return is a Social Insurance Number (SIN). Even Canadian residents who are extremely young should complete and file an Income Tax and Benefit return with the CRA every year if they have income to report.

Key Takeaways
  1. If your child earned income and source deductions were withheld, filing a tax return may get some, or all, of those deductions back in their pocket.
  2. Filing a return to report earned income builds RRSP contribution room, which can then be used to save for a new home or paying for education.
  3. Learning how to prepare a return young, when things are easier, will help prepare your child for the future.

Your Child Can Earn Money Tax-Free

There is a basic amount of income that taxpayers are able to earn tax-free every year. This personal amount is linked to the Consumer Price Index, which serves as a useful indicator of changes in consumer prices in Canada over time. Historically, it increases slightly each year.

This is a Non-Refundable Tax Credit called the Basic Personal Amount and the federal amount can be found on Line 30000 of the T1 General. Each province has a different provincial amount. The most recent federal personal amount is $15,000 for the 2023 taxation year. This means that during the 2023 tax year, individuals do not have to pay personal income tax on any amounts less than this.

If your child did not earn much income and did not pay any withholding taxes, he would neither owe taxes to the government nor receive a refund. However, if the employer of a child deducted some income taxes from the child’s earnings, the amount deducted can be claimed on the child’s tax return and will possibly be refunded.

Growing Your RRSP Contribution Room

Registered Retirement Savings Plan (RRSP) contribution room is calculated based on a percentage of earned income each year that is reported to the CRA. For every year that earned income is reported, the contribution room for the following year increases.

For example, if a young person begins declaring income early in life, he can get a jump-start on growing his contribution room. After a few years of earning income under the basic personal amount, he may have accumulated a few thousand dollars of contribution room. Later on, when he begins to work full-time and earn more money, he can utilize this additional RRSP room to lower his net income by purchasing an RRSP and lowering his tax bill.

Additionally, increasing the contribution room of an RRSP early in life can help Canadian taxpayers with the purchase of their first home under the Home Buyers Plan (HBP). A maximum of $35,000 can be withdrawn tax-free from an RRSP for the purchase of a home by a first-time buyer.

Another RRSP use that can be utilized early in life is the Lifelong Learning Plan (LLP). Under this plan, one is able to make tax-free withdrawals from an RRSP to support educational or training programs.

Understanding How Taxes Work

Income tax rules, regulations, and procedures can be complex and hard to understand for youngsters. If parents are able to find the time to teach their children about these topics early on, their children may develop a better understanding of our tax system, which may help them to better plan for their futures in terms of their finances. The process of learning about how to prepare one’s own income tax return could certainly lead to further important discussions about budgeting and savings.

Which TurboTax Is Best for You?

Figuring out all these specifics can be stressful, but doing your income taxes doesn’t need to be when you use TurboTax. We even offer a Free edition of TurboTax Online that you can prepare any type of tax return with, no strings attached.

However, if you do feel a bit overwhelmed, consider TurboTax Live Assist & Review and get unlimited help and advice from a real person as you do your taxes. Plus, there’s a final review before you file. Or, choose TurboTax Live Full Service and have one of our tax experts do your return from start to finish.

File with confidence.