Even if students are below the basic personal amount, those who file their tax returns can build RRSP contribution room and may be eligible for certain credits.mediaphotos/iStockPhoto / Getty Images
To file or not to file income tax returns – that is the question for students who just received their first T4s from part-time or summer jobs.
Many parents don’t see the point in filing as the income their child earned is below the basic personal amount. But tax experts and advisors say that’s a mistake.
Students with earned income may qualify for refundable tax credits, says Stefanie Ricchio, a chartered professional accountant in Toronto. Put in a way that may cause the student’s ears to perk up: filing could mean receiving more money.
Ms. Ricchio also views tax filing as a learning opportunity and a way to build strong financial habits. Students should set up their My CRA account online once their first tax return is filed. The tool will allow them to see if their received tax slips mirror what the CRA has on file.
“It’s also a great place to grab your notice of assessment and look up whether you are entitled to receive certain credits,” she says.
Jason Abbott, president and certified financial planner at WealthDesigns.ca in Toronto, says filing taxes at an early age may give students a greater appreciation of where their dollars go. Tax software makes the process easier and allows them to see how much taxes they paid or will be getting back.
“There’s no downside to filing early. It’s a simple return and straightforward process,” he says.
Below are five potential benefits for high school and post-secondary students who file tax returns:
Did someone say refund?
Evelyn Jacks, president of Knowledge Bureau Inc. in Winnipeg, says filing a tax return may generate refunds for students if there was any overpayment of Canada Pension Plan and Employment Insurance.
“Anyone with earned income should file a tax return for that reason alone,” she says.
Build RRSP contribution room
Retirement is decades away for students but that doesn’t mean they can’t start building up contribution room for their registered retirement savings plans (RRSPs). RRSP contribution room is calculated as 18 per cent of annual earned income reported on the tax return, Mr. Abbott says, noting it doesn’t take long for contribution room to add up.
While the student won’t likely contribute to an RRSP for years, building contribution room early may come in handy later, Ms. Ricchio adds. When their income hits a higher tax bracket, they can contribute to an RRSP to reduce the amount of taxes owing.
Tuition education amount and training credit
This non-refundable credit, which is issued in the student’s name, is at the top of Ms. Ricchio’s list for post-secondary students.
The tuition credit won’t affect students who earned below the basic personal amount, she says, but it can be carried forward for future years and used to offset taxes when they earn more income.
“They also have the option to transfer up to $5,000 of their unused tuition amount to a parent or caregiver,” she says.
HST/GST credit
Low-income earners tend to qualify to receive an HST/GST credit, paid out every quarter. But to receive it, the student must file a tax return by the April 30 filing deadline, Ms. Ricchio says.
If the student misses the tax-filing deadline, they miss being eligible for the payments.
“For a lot of people, every dollar counts, so why give that away?” she says.
Moving expenses
Students attending full-time post-secondary education at least 40 kilometres away from home may qualify to deduct moving expenses – another way to get some money back after filing a tax return, Mr. Abbott says.