Earned a small amount of income? Here's why you should still file a return.
February 25, 2021
When you’re working that 9 – 5 and getting paid for your hard work, you’re probably used to seeing income tax deducted on your paycheque. Even if you only worked for a short time, like at a summer job or an internship; as long as you were an employee, you probably paid income taxes. If that sounds familiar, you might be wondering whether it’s worth it to file a tax return if you’ve paid tax already.
Here’s why it almost always makes sense to file.
The basic personal amount: what you can earn before you start paying taxes.
Everyone who is a resident of Canada can claim the basic personal amount, which for federal purposes in 2020 was $13,229. That means that you can earn at least this amount of money before you need to start paying federal income taxes to the government. Each province also has a basic personal amount, but it varies depending on where you live.
Canada Pension Plan (CPP) contributions: saving for the future.
If you’re between the ages of 18 and 65, you’re obligated to pay CPP premiums from your paycheques. However, you can claim a non-refundable tax credit both federally and provincially for your required contribution. So, if you earned $13,000 this year, your required CPP contribution will be $498.75, and you’ll also get non-refundable tax credit for this amount. When you add the amount of your CPP contributions to the basic personal amount, it increases the amount you can earn before being subject to tax.
Employment Insurance (EI) contributions: paying ahead, just in case.
You’ve paid EI contributions, so you’re entitled to both a federal and provincial non-refundable tax credit, which everybody must pay regardless of their age. If you add this to your basic personal amount, and your amount for CPP contributions, the amount you can earn before paying taxes rises.
Canada Employment Amount: the CRA’s way of saying “thanks for working”
If you earned employment income and received a T4, you’ll qualify for the federal Canada Employment Amount of $1,245. If you call the Yukon home, you’re in luck, as it’s the only province or territory that provides a matching Canada Employment Amount. But if you aren’t up north, and are living anywhere else in Canada, this credit won’t reduce any provincial or territorial taxes you owe.
Let’s say you did work this year, but your total income was below the minimum amounts. If you had income tax withheld from your paycheques, you can get that money back by filing a tax return. And even earning only a small amount of income helps build RRSP contribution room, which might come in handy when you earn more. Just make sure you receive your T4 slip from your employer before you file your return so you can make the claim.
Whether you end up working more down the road, or will earn just a little more each year, you’ll always pay your fair share of income tax. So if it just so happens that you paid tax when you didn’t need to, get that return filed and enjoy the refund.
Still wondering whether or not you should file your tax return? H&R Block can help. Stop in and chat with a Tax Expert at an office near you. Ready to file? Do it yourself with our free online software.