Should Canadian students complete an annual tax return and what are the steps required to submit?

For businesses, organizations and high performing individuals, Canadian tax laws can be complicated. The Partners and staff at Millards Chartered Professional Accountants are highly skilled and we use our team experience and expertise to guide our clients through the turbulent waters of financial well-being. We tackle challenging taxation scenarios everyday but we understand that there are many individuals at the other end of the spectrum. Those just entering the workforce, like students, may not even realize that they need to submit a tax return.

This video webinar below from the CRA uses the fictional journey of an 18-year-old named Sacha to explain the complexities of the Canadian tax system, particularly relevant to students entering the workforce for the first time. The presentation aims to demystify taxes and encourage students to understand their tax obligations and benefits.

Key Themes

  • Importance of Paying Taxes: The webinar emphasizes that taxes fund essential public services like healthcare, education, infrastructure, and social programs. It reframes taxes as a contribution to the community, stating: “The tax we pay also puts money into the pockets of families, students, newcomers, seniors, and persons with disabilities.”
  • Tax Education for Young Adults: The presentation is geared towards students taking on their first jobs, providing a clear explanation of the process, including obtaining a Social Insurance Number (SIN), filling out a TD1 form, understanding pay stubs, and receiving T4 slips.
  • Understanding Deductions: The webinar explains deductions from paychecks including income tax, Employment Insurance (EI), and Canada Pension Plan (CPP)/Quebec Pension Plan (QPP), noting, “These deductions help pay for services across the country and help those who are unemployed, retired, or persons with disabilities.”
  • The Underground Economy: It highlights the dangers of participating in the underground economy (working for cash without reporting income), stating that it “amount to billions of dollars lost that are needed to fund public services in your community”.
  • Benefits of Filing Taxes: The document stresses that filing taxes allows individuals to receive potential refunds and access various benefit and credit payments, including the GST/HST credit and the Canada Carbon Rebate. It clarifies: “You could be eligible for payments even if you didn’t earn any income, or your income is tax exempt.”
  • Available Tax Credits and Deductions: It highlights credits and deductions that students can claim, including moving expenses, childcare expenses, Canada employment amount, interest on student loans, tuition tax credits, and the disability tax credit. It explains, “These tax credits reduce the income tax you owe.”
  • Accessibility of Tax Filing: The presentation presents the different ways to file taxes, including online using certified software, with volunteer assistance, or on paper. It emphasizes the efficiency of electronic filing, explaining: “Tax returns filed electronically are typically processed within two weeks.”
  • Digital Services and Security: The webinar promotes the CRA’s online services, including My Account and automatic return filling, as well as email notifications, while also warning about scams: “Email notifications from the CRA let you know what changes are made to your personal information in My Account or there is CRA mail to view online.”

Key Facts and Ideas

  1. Social Insurance Number (SIN): A unique 9-digit number needed to work in Canada and access government benefits, which individuals are responsible for keeping safe. “You are the only person who is supposed to use it, and you are responsible for keeping it safe.”
  2. TD1 Form: A form required when starting a new job that allows your employer to calculate the correct income tax deductions.
  3. Pay Stub: Contains information about gross income, deductions (income tax, EI, CPP/QPP), and net pay.
  4. T4 Slip: An annual document from employers showing income and deductions for a calendar year, required for tax filing. “Your T4 is an important document that your employer gives you.”
  5. Reporting All Income: It is crucial to report all income, including tips and earnings from various sources. “Even when you don’t receive a T4 slip.”
  6. Tax Filing Deadline: April 30th is the deadline for most Canadians to file taxes and pay any amount owed.
  7. Notice of Assessment: A yearly evaluation of the filed tax return from the CRA, detailing refund or tax owed. “It’s an important document that should be kept with your tax records.”
  8. My Account: An online portal where individuals can manage their tax affairs and access tax information from the CRA.
  9. GST/HST Credit & Canada Carbon Rebate: Quarterly tax-free payments for eligible low- and modest-income individuals.
  10. Refundable vs. Non-Refundable Tax Credits: Refundable credits result in a refund if they exceed tax owed, while non-refundable credits can only reduce tax to $0.
  11. Deductions vs Credits: Deductions reduce your taxable income, credits reduce the amount of tax you pay.
  12. Community Volunteer Income Tax Program: A free program offering tax assistance to individuals with a modest income and a simple tax situation.

Sacha’s Journey – A Case Study

Sacha’s story serves as an illustrative guide, highlighting the following:

  • Starting a first job: Sacha learns about the paperwork required (SIN, TD1) and the nature of pay stubs.
  • Receiving a T4 slip: Sacha learns what the slip is for, and why it’s important.
  • Dealing with the underground economy: Sacha gets clarity on the concept and associated issues.
  • Completing taxes: Sacha explores different methods of filing and the benefits of claiming credits and deductions.
  • Post-tax return actions: Receiving the notice of assessment, the importance of keeping records, and learning about further tax benefits.

Conclusion

The CRA webinar effectively communicates key tax concepts to students and young adults. It emphasises not only the obligations of taxpayers, but also the benefits available to those who participate fully in the tax system. It simplifies complex issues through the use of relatable scenarios and resources, making the prospect of managing taxes less daunting. The document clearly outlines the steps for filing taxes, accessing tax credits, and utilising CRA digital services, which should empower young people to handle their tax responsibilities confidently.

Recommendations:

  • Encourage students to obtain a SIN early on and keep it secure.
  • Stress the importance of tracking all income, regardless of form of payment.
  • Advise students to use certified tax software or seek help from free tax clinics.
  • Promote registration for My Account for efficient tax management and accessing online services.
  • Highlight available resources such as “Learn About Your Taxes” and encourage seeking information from the CRA website or helpline when needed.