Why your teenage children should file a tax return

by Michael Silver

It’s tax season again, and one question I often hear from parents is, “Should my teenager who works part-time and won’t owe any taxes still bother filing a return?” While it may seem unnecessary at first glance, the truth is that there are many reasons why your working teenager should file. It’s not just about paying taxes – it’s about unlocking future benefits, recovering withheld money, and building sound financial habits that can set them up for success.

Access to government benefits

One of the most compelling reasons to file early is to access government benefits. In Canada, once an individual turns 19, they become eligible for programs such as the GST/HST credit and, in many provinces, the Carbon Tax rebate. These programs provide regular payments designed to help lower and middle-income Canadians offset rising living costs. However, to receive these payments, a tax return must be filed. Without this record, they may miss out on payments that they are otherwise entitled to receive. Encouraging your teenager to start filing tax returns early helps establish the necessary paper trail to ensure they’ll get these benefits when the time comes.

Recovering withheld taxes

Additionally, even though many part-time jobs don’t generate enough income to owe taxes, employers are still required to withhold income tax from their employees’ paycheques. This is especially common if your child works more than a few hours per week. Depending on their total income for the year, they may be entitled to a full refund of the tax that was withheld. By filing a return, your teenager can recover this money, which could amount to hundreds of dollars depending on how much they earned. For a young person, getting that money back can provide a financial boost, whether they use it for school, savings, or daily expenses.

Building RRSP contribution room

Filing a tax return also begins the process of building up RRSP (Registered Retirement Savings Plan) contribution room. In Canada, RRSP room is calculated as 18 per cent of earned income. For example, if your child earns $1,000 in a year, they’ll accumulate $180 in contribution room. While they may not need to contribute to an RRSP now, this unused contribution room carries forward indefinitely. Over time, this can grow into a significant amount of space for tax-deferred retirement savings. When your child eventually secures a full-time job and has the ability to save more, they’ll appreciate having this room already built up. It can be particularly useful for large expenses, such as buying a home under the Home Buyers’ Plan, or for planning long-term retirement savings.

Developing financial literacy and life skills

Beyond the financial advantages, filing a tax return helps your child develop important life skills and financial literacy. Taxes are a fact of life, and many adults experience anxiety and confusion around filing their returns each year. By learning how to navigate the process at a young age, your teenager will gain confidence in managing their finances. They’ll become familiar with concepts like income, deductions, credits, and refunds. This habit of organizing tax slips and tracking earnings is an invaluable skill that can make them more financially responsible in other areas of life. It can also spark an early understanding of how the financial system works, which will serve them well as they take on more complex financial tasks, such as budgeting, investing, and retirement planning.

Keeping records current with the CRA

It’s also worth mentioning that filing tax returns year after year keeps their records current with the Canada Revenue Agency (CRA). This can reduce issues down the line when they need to apply for programs such as student financial aid, loans, or even tax credits related to education or childcare when they start their own families. Keeping an up-to-date tax history makes it easier to access various financial services and government programs throughout life.

A smart financial move for the future

Even if your child earns very little and owes no taxes, filing a tax return is a smart financial move. It can unlock access to future government benefits, recover any taxes that were withheld, and build RRSP room that will be valuable down the road. Perhaps just as importantly, it introduces your teenager to essential financial responsibilities and habits. Filing taxes isn’t just about compliance with government rules – it’s a foundation for financial planning and security.

So, if your teenager worked part-time this year, encourage them to file their return. It’s a small effort now that could result in significant benefits in both the short and long term. By filing early and consistently, they’ll be better prepared to take control of their finances and capitalize on opportunities that many overlook.

by Michael Silver, B.Comm. (Hons), CFP®, CHS, Managing Partner, W.P.G. The Wealth Planning Group