In Canada, it is not uncommon for teenagers to get a summer job, after-school job, or other employment position while they are underage. These jobs can teach responsibility and provide a sense of autonomy. An experienced tax lawyer at Jeremy Scott Law can review the circumstances and explain whether your child should file a tax return. Consider contacting our experienced Canadian tax team at (902) 403-7201 to schedule a confidential consultation to discuss your situation.
When Children Must File a Tax Return in Canada
According to the Canada Revenue Agency, Canadians are generally required to file a tax return if they have to pay tax for the taxation year, or if they meet one of a number of other criteria. As a result, it is possible that if your child earns a relatively small amount, they may not be required to file a tax return. However, they may still want to file even if they are not technically required to do so. There are a number of benefits of filing a tax return as a child, which are discussed below. Again, this is assuming that your child does not owe tax because their earnings were too low. If your child owes tax for some other reason than their work earnings, they may need to file a tax return.
Canada Tax Rates
Canada’s income tax rates increase as a taxpayer’s income increases. The 2023 tax rates according to the Canada Revenue Agency are:
- First $53,359 – 15%
- Over $53,359 and up to $106,717 – 20.5%
- Over $106,717 and up to $165,430 – 26%
- Over $165,430 and up to $235,675 – 29.32%
- Over $235,675 – 33%
Because children generally work part-time or at entry-level positions, their tax rate is usually lower than their parents’. If you are a single parent, your child working may affect your own tax situation if you claim the eligible dependent credit for that child. You must deduct your child’s net income from the credit dollar-for-dollar on your own return.
What Are the Benefits of a Child Filing a Tax Return in Canada?
There are several circumstances in which working children should file a tax return in Canada:
They May Receive a Tax Refund
If your child had income taxes or CPP premiums deducted from their paychecks, they may be able to have these amounts refunded if they earned less than the basic personal amount for the tax year.
They Can Build Their Retirement Savings Contributions
Filing a tax return can also help your child build up their Registered Retirement Savings Plan (RRSP) contributions. These contributions equal a portion of earned income every year you file a tax return with the Canada Revenue Agency. For each year that a person reports earned income, the contribution room increases for the next year. For example, a taxpayer can allocate 18% of that year’s income toward the RRSP contribution room for the following year. Therefore, if your child earned $2,000, they have built up $360 RRSP room. Over time, this can add up to a sizeable amount.
Getting an early start on RRSP can help not only in building up retirement savings but also building up savings for other purposes. For example, taxpayers can withdraw up to $35,000 tax-free to purchase a home through the Home Buyers Plan. Another option is to make tax-free withdrawals from an RRSP to pay for educational expenses as part of the Lifelong Learning Plan.
They Can Register with the Canada Revenue Agency
Filing a tax return can also help your child register with the Canada Revenue Agency. Your child’s information will already be in the Canada Revenue Agency’s system.
This can make things easier as they get older. For example, they will automatically become eligible for the HST/GST credit once they are 19 years old. This could even help increase the family’s tax return. Initial tax returns may need to be mailed in but filing now may allow your child to file electronically in the future.
You May Receive Additional Tax Savings
In addition to the potential HST/GST credit, your family may benefit from other tax savings if your child files a tax return. For example, if your child has medical expenses, you may be able to add all of the family’s medical expenses together to one person to lower your taxes. Additionally, if your child receives a tuition credit for post-secondary school, they may be able to transfer that amount over to you to claim as a credit.
Filing a Tax Return Prepares Them for the Future
Filing a tax return while they are young can help prepare children for their future responsibilities. This is an important life skill to develop. It will also likely be easier to file a tax return with straightforward information while they are young rather than filing after they have tuition credits, medical expenses, or other credits or deductions to make.
What Do You Need to File a Tax Return in Canada?
If your child files a tax return in Canada, you will need to provide certain information. Depending on the situation, this may include:
- A Social Insurance Number or an Individual Tax Number
- Form T2202 for any tuition fees your child paid for the tax year
- Form T4 from your employer, which provides details about your child’s employment income and deductions
- Form T4A if your child has received a scholarship, bursary, taxable tuition waiver, or teacher certificate in the tax year
- Documentation to support deductions, such as receipts, invoices, bills, and logs
It can be confusing for a child to file a tax return for the first time. A knowledgeable tax lawyer from Jeremy Scott Law can review your situation, examine your supporting documents, and make personalized recommendations.
Contact an Experienced Canadian Tax Lawyer for Help with Your Child’s Tax Return
If you are wondering whether your children should file a tax return in Canada, consider contacting Jeremy Scott Law to get answers to all your questions. Our tax lawyers can review your particular situation and ensure your legal and financial rights remain protected. You can schedule a confidential consultation by calling us at (902) 403-7201.