Financial Literacy for Students and Young Adults in Edmonton

Navigating finances for the first time can feel overwhelming, especially for students and young adults in Edmonton who are balancing studies, part-time jobs, and new responsibilities. One critical aspect of financial literacy that often gets overlooked is understanding and managing taxes. Despite having a low or even negligible income, it is essential for students and young adults to understand how the tax system works and why filing taxes is important.

Many young people assume that filing taxes is unnecessary if their income is low, but in fact, filing taxes can unlock a range of benefits, tax credits, and future financial opportunities. This guide aims to provide a comprehensive understanding of the Canadian tax system, the tax filing process, and the advantages of staying compliant, especially for Edmonton’s youth.

Basic Tax Education for Students and Young Adults

Taxes can be intimidating, but understanding the basics can make the process less daunting. Below is an overview of how the Canadian tax system works, the key forms you’ll encounter, and the most important tax credits available to students and young adults.

Understanding the Canadian Tax System

In Canada, everyone is subject to taxation, even if you are earning a low income. Here’s how the system works:

Federal and Provincial Taxes

• Federal Taxes: Canada has a federal tax system that applies uniformly across the country, with tax brackets that vary based on income levels.
• Provincial Taxes: In addition to federal taxes, each province has its own tax system. In Alberta, the tax system is progressive, meaning that higher income is taxed at higher rates.

Taxable Income

Your taxable income includes any money you earn from employment, self-employment, investment income, and in some cases, scholarships. It’s important to note that certain income types, like specific scholarships and bursaries, may be exempt from taxation.

Example: A student in Edmonton earns CAD 12,000 annually from part-time work. Although this is below the basic personal amount (CAD 15,000 in 2023 for Alberta), filing taxes can still unlock benefits like the GST/HST credit or tuition tax credits.

Progressive Taxation

Canada’s tax system uses a progressive taxation model, where the more you earn, the higher the percentage of tax you pay. However, those with low or no income often benefit from tax credits and deductions, significantly reducing their tax burden.

Essential Tax Forms

For students and young adults, understanding the key tax forms is crucial for ensuring that your taxes are filed accurately.

1. T4 Slip

A T4 slip is issued by employers and summarizes your annual employment income and any deductions made, such as taxes, CPP (Canada Pension Plan), or EI (Employment Insurance). If you’ve held multiple jobs, you’ll receive a T4 slip from each employer.

2. T2202 Tuition and Enrolment Certificate

If you’re a student at a post-secondary institution, you’ll receive a T2202 form. This certificate outlines the tuition fees paid, and the number of months you were enrolled in full-time or part-time studies. You can use this to claim tuition tax credits.

3. T5 Slip

A T5 slip is issued for investment income, such as interest earned from savings accounts or dividends from investments. Even small amounts of investment income must be reported on your tax return.

Important Tax Credits and Deductions

There are several tax credits and deductions that specifically benefit students and young adults in Canada, helping reduce the amount of tax owed or providing valuable credits that can be used in future years.

1. Tuition Tax Credit

The tuition tax credit is a vital benefit for students. It allows you to reduce your taxable income based on the tuition fees you’ve paid to an eligible post-secondary institution. If your income is too low to use the credits in the current year, you can carry forward the unused portion or transfer them to a family member.

Example: A student pays CAD 8,000 in tuition fees but only earns CAD 10,000 from part-time work. Since the student’s income is below the basic personal amount, they owe no taxes for the current year. However, they can carry forward the unused tuition credits to offset future taxable income when their earnings increase.

2. Canada Employment Amount

If you’ve been working while studying, the Canada Employment Amount helps reduce your tax liability. For the 2023 tax year, this credit allows employed individuals to claim up to CAD 1,287 to offset work-related expenses such as transportation and meals.

3. GST/HST Credit

The GST/HST credit is a quarterly tax-free payment that helps individuals and families with modest incomes offset the GST/HST they pay throughout the year. Filing taxes, even with no income, is necessary to receive this credit.

Example: A young adult earning CAD 9,000 annually files their taxes and qualifies for the GST/HST credit. They receive quarterly payments of CAD 111 to help cover their living expenses.

4. Moving Expenses Deduction

If you’ve moved more than 40 kilometers to attend school or take a new job, you might be eligible to claim moving expenses on your tax return. This includes costs like transportation, moving services, temporary accommodations, and even storage.

5. Student Loan Interest Credit

If you’re repaying government student loans, the interest you pay can be claimed as a non-refundable tax credit. This helps reduce your overall tax liability, though it doesn’t result in a cash refund.

Filing Your Taxes

Filing taxes for the first time can be daunting, but understanding the process makes it easier. Here’s a step-by-step breakdown of what students and young adults in Edmonton need to know about filing taxes.

When to File

The tax filing deadline in Canada is typically April 30th each year. If you are self-employed, you have until June 15th, but any taxes owed must still be paid by April 30th to avoid interest charges.

How to File

There are several ways to file your taxes:

• Online Filing (NETFILE): You can file your taxes online using NETFILE-certified software such as TurboTax, SimpleTax, or Wealthsimple Tax. These programs guide you through the process and automatically submit your return to the Canada Revenue Agency (CRA).
• By Mail: If you prefer, you can file a paper return by mailing the necessary documents to the CRA.
• Tax Professional: Consulting a tax professional is often the easiest option, especially for first-time filers or those with more complex returns.

Required Information

To file your taxes, you’ll need the following information:

• Social Insurance Number (SIN): This is necessary to file your return and track your contributions to CPP and EI.
• Income Slips: Collect all T4, T5, and other income slips from employers or financial institutions.
• Tuition Receipts: Your T2202 form will outline your eligible tuition expenses.
• Other Documents: Include moving receipts, student loan interest statements, and any other documentation related to tax credits or deductions.

Why Filing Taxes is Important Even with Low Income

Even if you have a low income or no income, there are significant benefits to filing your taxes.

1. Access to Tax Credits and Benefits

GST/HST Credit

Filing your taxes ensures that you’re eligible to receive the GST/HST credit, which provides a quarterly payment to help cover living expenses.

Canada Child Benefit (CCB)

For young parents, filing taxes is essential to receive the Canada Child Benefit (CCB), a tax-free monthly payment that helps with the cost of raising children under 18.

Provincial Benefits

In Alberta, you may qualify for additional benefits such as the Alberta Child and Family Benefit or the Alberta Climate Leadership Adjustment Rebate, but you must file your taxes to determine eligibility.

2. Tuition Carryforward

If your current income is too low to use all your tuition tax credits, you can carry them forward indefinitely. This means that once your income increases, you can apply the unused credits to reduce future tax bills.

3. Building a Financial Record

Filing taxes is an essential part of building a solid financial history, which is useful for:

• Creditworthiness: Filing taxes consistently helps establish a financial record, which can be valuable when applying for loans, mortgages, or credit cards.
• Employment Opportunities: Some employers may require proof of tax filing as part of the hiring process, particularly for positions involving financial responsibilities.

4. Avoiding Penalties and Legal Issues

Filing taxes is a legal requirement in Canada. Even if you owe no taxes, failing to file can result in penalties and interest charges down the line. Filing on time ensures compliance with CRA regulations and peace of mind.

5. Contributing to Social Programs

Taxes aren’t just a financial obligation; they’re also a way to contribute to essential public services. By paying taxes, you support healthcare, education, infrastructure, and other social programs that benefit the community.

Tips for First-Time Tax Filers

Here are some practical tips to help students and young adults file their taxes accurately and on time.

1. Gather All Documents

Make sure to collect all necessary documentation, including T4 slips, tuition receipts, student loan interest forms, and any correspondence from the CRA.

2. Use Free Resources

The CRA offers free tax clinics for individuals with simple tax situations, where volunteers can help you file your return. Additionally, many NETFILE-certified software options are free for those with low income.

3. Consider Professional Help

If your tax situation is more complex, it’s worth consulting with a tax professional to ensure that you maximize your refunds or credits and file your return accurately.

4. Stay Updated

Tax rules and credits can change from year to year. Make sure you’re staying informed about the latest tax updates, especially for students and young adults.

How BOMCAS Canada Accounting Firm Can Help

Filing taxes for the first time doesn’t have to be overwhelming. At BOMCAS Canada Accounting Firm, we specialize in helping students and young adults in Edmonton navigate the complexities of tax filing and financial planning.

Our Services Include:

• Personalized Tax Preparation: We ensure that all eligible credits and deductions are claimed to maximize your refund or minimize your tax liability.
• Tuition Credit Optimization: We’ll help you decide whether to use your tuition credits now or carry them forward for future tax savings.
• GST/HST Credit Assistance: We ensure that you’re properly registered to receive your quarterly GST/HST credit payments.
• Financial Advice: In addition to tax filing, we offer guidance on building a strong financial foundation and improving your creditworthiness.
• Affordable Services: We understand the budget constraints that students and young adults face, and we offer competitive pricing for our tax services.

Contact Us Today

Take the first step toward financial literacy and secure your financial future with help from BOMCAS Canada.

Phone: 780-667-5250
Fax: 780-851-2520
Email: info@bomcas.ca
Website: https://bomcas.ca

At BOMCAS Canada, we’re committed to empowering Edmonton’s youth with the knowledge and tools they need to succeed financially. Let us help you navigate the world of taxes with confidence.