Young couple doing finances at laptopAndrey Popov/Getty Images/iStockphoto
The dreaded tax season looks even more daunting when you're a first-time filer, and one of the challenges for young Canadians can be knowing where to start.
Tax advisers say teenagers and young adults should take a pro-active approach to tax season, and file their own documents themselves before the April 30 deadline, rather than relying on parents or a tax professional.
"The tax return is the first significant financial document young people run across, and it probably continues to be the most important financial document throughout their lifetime," said Evelyn Jacks, president of the Knowledge Bureau in Winnipeg.
"This is the first lesson in financial planning: Who has control of the first dollars you earn – the government or you."
The Canada Revenue Agency has a free introductory course on its website called Learning About Taxes. The lesson takes around 90 minutes to complete and covers the basics of the tax system and how to file a simple tax return online.
Finding the answers to basic tax questions has also become easier with a variety of other resources on the CRA website. But at the same time, tax documents have become more perplexing because of credits introduced over the past few years.
"As a student you've got additional complexities that weren't there in the past," said Jack Mintz, director at the University of Calgary's School of Public Policy.
Financial advisers suggest parents can help by starting a conversation about their own tax experiences, to help their children navigate the process.
Teenagers should file a tax return regardless of their age or income in order to bulk up the unused RRSP that can be tapped into years down the road, said Jacks.
"If you do a lot of babysitting, lawn care or snow shovelling – even before you get that first job where an employer is taking taxes off your paycheque – you probably should be filing a tax return," she said.
"That's important later on when you go to university because you can transfer unused tuition and education credits to your parents' tax return."
University and college students can also tap into a number of credits that help boost their annual returns. Full-time students can claim a textbook credit that amounts to $65 for each month of qualified enrolment or $20 for part-time students.
Make sure to hang onto those receipts too, because the CRA still expects to see all of your paper receipts if they come knocking, even if you filed through their website. That means every qualifying public transit pass and college or university document needs to be accounted for during an audit.
Also, don't give into the common pitfalls of tax season, such as spending your refund on items you otherwise couldn't afford.
"Remember, this is your money coming back to you," said John Waters, head of tax and estate planning at BMO Nesbitt Burns. "It's not a windfall and it's not a lottery win."
Waters suggests young Canadians narrow their priorities and focus on paying off student loans or credit card debt first, and then reinvest the remaining money into an RRSP or a "rainy day fund" for emergencies.