Many low earners, teens, and students don’t bother filing tax returns. After all, if you only earned a few grand last year, what’s the point, right?
But tax experts say there’s plenty of reason for low earners to file a tax return.
“Our system is based on filing your taxes,” says Jeff Cates, president of Intuit Canada — which means that if you’re a low earner and you don’t file a tax return, you will likely be missing out on some cash back in your pocket.
So long as you earned income in the previous tax year — meaning some sort of paycheque or self-employed earnings — you or your family could get money back from the government.
Here are a few ways you can do just that:.
This is a tax credit — it’s money the government sends back to the taxpayer. In this case, it goes to lower-income people to offset the cost of the GST/HST.
For the July 2016 to July 2017 period, a single person earning less than $35,926 can get up to $420 in cash per year from this rebate, and a family of four earning the same can see up to $842.
The government sends this money in four installments over the course of a year, but you can’t get this benefit without filing a tax return. It’s available to those aged 19 and over.
A tuition tax credit is available to full- or part-time students who spent at least $100 on tuition at an accredited institution. You can use it if you or family members paid for your tuition, but not if your employer or a government program covered it.
If you earned too little to take full advantage of this tax credit, you can transfer up to $5,000 of credit to your parents or an eligible person — meaning up to $750 cash back.
If you moved to go to school, you or your parents can claim your moving expenses, so long as you moved at least 40 kilometres closer to the school.
If you have a student loan you’re paying off, don’t forget to claim the interest you paid on it. The government will credit you with 15 per cent of the cost of that interest.
There is a tax deduction for the cost of moving — meaning you can reduce the amount of income you pay taxes on by claiming this benefit.
You can deduct some of your moving expenses, so long as you moved at least 40 kilometres closer to your new job or school, and parents can claim this on behalf of children in school.
“Moving expenses for children I rarely see claimed,'' tax professional Jason Heath of Objective Financial Partners told The Canadian Press. “It could literally be $1,000 (for a student) to move back and forth.''
Some child-care expenses are deductible from your taxable income. This includes babysitting and daycare, as well as some summer camp costs.
If more than one parent is raising the child, the parent with the lower income has to claim these expenses — even if that parent earned no money.
You can deduct up to $8,000 in expenses for a child six and under, and up to $5,000 for a child aged seven to 15.
“Be careful, though,” says Robb Engen of the Boomer and Echo financial blog. “Some dads might get away with calling it ‘babysitting’ when parenting on their own, however that's not going to fly in (Canada Revenue’s) eyes.”
Working Income Tax Benefit (WITB)
This is a tax credit available to individuals or families with lower incomes.
For 2016, a single person with no children gets the maximum tax credit of $1,028 if they earned between $7,112 and $11,675. The tax credit is reduced the more you earn above that amount, and you’re not eligible if you earned more than $18,529.
A family with children gets the maximum tax credit of $1,868 if the family earned between $10,472 and $16,122. The tax credit is reduced above that, and any family earning above $28,576 won’t receive the credit.
(These numbers vary in Alberta, B.C., Nunavut and Quebec.)
An individual or a family must earn at least $3,000 in a year to qualify for the WITB.
Public transit tax credit
The Vancouver SkyTrain's Canada Line. Photo: Volodymyr Kyrylyuk via Getty Images)
You can, and should, claim the full amount you spent on public transit on your tax return. The government will credit you 15 per cent of what you spent on monthly or weekly passes, or electronic fare cards used on an ongoing basis. So make sure you get a receipt.
This tax credit was eliminated in the federal Liberals’ most recent budget, so the 2016 tax year is the last time you’ll be able to use this benefit.
Medical deductions are among the most overlooked tax benefits, experts say.
You can take advantage of a medical expense benefit “as long as you made some money,” says Cleo Hamel, a senior tax specialist with American Expat Tax Services.
Not everything is covered by provincial health insurance, and if you find yourself spending out of pocket on health care, you can deduct those expenses from your taxable income, potentially giving yourself a tax return.
You can deduct medical expenses if they amounted to three per cent or more of your income or your spouse’s income, or $2,237, whichever is less. Those paying for expanded medical insurance can deduct their premiums and any out-of-pocket deductibles.
Future benefits of filing today
One major reason to file an income tax return — even if you didn’t earn much — is to prepare for the day when you will make more. Filing a tax return can help with both retirement and buying a home.
“Any earnings you do report on your tax return will build RRSP (Registered Retirement Savings Plan) contribution room, which will be useful for your future, higher income earning years,” Engen says.
Anything you put into an RRSP is deducted from your taxes, and taxed only when you use the money in retirement. Since you can withdraw up to $25,000 from an RRSP to buy a first home, you can consider it a savings account for a first home (you get 15 years to pay the money back into your RRSP).
Hamel says her teenage sons filed tax returns for their part-time jobs and got hundreds of dollars back from the government.
“If I had followed the rule of no filing until you’re 18, we would have missed out on two years of returns & RRSP contribution room,” she says.
She advises putting money into an RRSP even if you don’t have much in the way of savings, because the sooner you begin, the more those savings will be worth in retirement.
“If you can start when you’re 18 it will make you much more,” she says.
Whatever your income situation, you can get help with your taxes for free. There are a number of free “guided” software applications you can use, the most popular of which are TurboTax and UFile. They build your income tax return by asking a series of questions. H&R Block offers a similar free service.
There are also free tax preparation clinics across Canada. You can find their locations and hours via this Canada Revenue Agency page.