Whether it’s working as a babysitter, a tutor, or a day camp counselor, every kid’s first job is always special. It’s an important milestone that teaches them valuable skills and encourages them to be responsible and independent.
A first job is also an excellent opportunity for parents to teach their kids how to manage money, finance, and accounting. But if you’re Canadian, you’re probably wondering whether your kid also has to file taxes. Let’s find out.
Do minors pay taxes on income In Canada?
Paying income tax is not age-specific in Canada. The Canada Revenue Agency (CRA) has a specified amount below which a citizen (minor or adult) does not have to pay any taxes.
So, if your yearly earnings are below $12,950, you do not have to pay any taxes, regardless of whether you’re an adult or a minor.
Typically, minors would earn lower than the exemption amount, so they do not have to pay income tax.
However, this only applies to earned income. If a child has another source of income, i.e., unearned income from interest or dividends on investments, then there is a different cut-off income.
So, if a child earns more than $1,150 in unearned income, they will have to pay taxes.
And if a minor has both unearned and earned income, you will need to add both these incomes. And if the amount exceeds a certain limit, your kid will have to pay tax.
There are essentially two conditions in which a child will have to pay taxes even if their total income is below the threshold:
- If a minor is self-employed, he may owe Self-Employment Tax — that is, Social Security and Medicaid taxes for both the employee’s and employer’s share. The threshold is $400. So, if a minor earns more than this through self-employment, he has to pay income tax.
- If he owes Social Security or Medicare taxes on tip income, the minor will have to file a tax return.
Do I Have To File A Tax Return For My Child?
Although your child may not be eligible to pay taxes, they should still file for a tax return. There are several benefits of doing so:
- If your child’s income was deducted and income tax was withheld at source, the amount will be refunded.
- Filing a return will set up his information with the CRA, which will be useful in the future. The CRA requires first-time filings to be done by mail, following which the child’s information will be recorded, and he can file future returns electronically.
- It is easier to register a high school child with the CRA than when they get older.
- By filing a tax return, you are reporting earned income. As soon as an income is reported, the Registered Retirement Savings Plan (RRSP) contribution begins.
- It is an excellent teaching moment where parents can help their kids file a return, which will help them with future financing and accounting.
When Do You Start Paying Taxes In Canada?
Tax payment in Canada is based on income level and not age.
So, whether you are 8 or 80, you have to pay income tax if you fall in any of the below categories:
- You owe some tax amount to the CRA.
- You participated in the Lifelong Learning Plan or Home Buyer’s Plan and owe repayments.
- You and your common-law partner/spouse want to split your pension income.
- You are self-employed and have to pay Employment Insurance Premiums and Canada Pension Plan Premiums.
- You have sold your home or other capital property.
- You have to repay Employment Insurance Benefits or Old Age Security.
- You have received advance Canada Workers Benefit payment in the tax year.
- You are requested to file a return by CRA.
- You are demanded to file a return by CRA. In this case, it is better to get your filings done as soon as possible.
Do I Have To Claim My Child’s Income?
Ideally, no, you should not claim your child’s income. This is your kid’s earned money and should be reported as such.
Allowing your child to file taxes will benefit them in various ways in the long term. Not only will they probably receive a refund and kickstart their RRSP, but they may also be eligible for certain government schemes.
On the other hand, if your child has to pay tax on unearned income, you can claim the money on your return. However, there are restrictions on how much money you can claim, plus your tax will be higher than when your child files an individual return.
The tax system in Canada works slightly differently from many other countries. It focuses on income rather than age for levying taxes. So, if your child has an earned income and it is lower than $12,950, your child does not have to pay any taxes. However, you can still help your kid file tax returns to help them reap government benefits.