Whether you’re going to school and living at home, are at university or college, or are about to start living on your own, it’s important to understand the best ways to minimize how much you pay in taxes and how you can maximize your tax refund. Even if you have little income, there are tax credits, deduction, and benefits you can take advantage of.
If you’re looking for ways to save money come tax season, read this tax guide for Canadian students.
Basic information on Taxes for Students
Everyone that works has to pax taxes, which means everyone that works has to fill out their income tax return. Fortunately, there are a large number of deductions and tax credits you can use to help maximize your tax refund.
Know Your Eligibility for Deductions and Credits
To save money come tax time, you need to be aware of any and all deductions and tax credits you are eligible for. For example, you may be eligible for the Canada child benefit, GST/HST credit, and provincial or territorial benefits.
As a student, you may be able to claim a large number of expense, including your tuition fees (which includes admission fees, library charges, academic fees, membership or seminar fees, examination fees, charges for your diploma or degree, etc.), interest on your student loans, and eligible moving expenses.
To continue to get these tax credits and deductions, you need to make sure you do your taxes every year. That’s because the Canada Revenue Agency (CRA) uses the information from your tax return to calculate the amount of benefits and credits you’re eligible for.
Watch Out for Tax Scams and Fraud
Doing taxes can be stressful, and the large number of tax scams and frauds being perpetuated can make it even more stressful. Canadian students need to be careful when dealing with so-called emails, texts, or phone calls coming from the CRA.
You also need to be vigilant if someone asks you to verify your personal information by providing them with your social insurance number, bank account information, credit card numbers, or even passport numbers. That’s all the information they need to steal your identity and money.
The CRA will never ask for prepaid credit cards or gift cards; information about your passport, healthcare, or driver’s license; or personal information by email. They will also never leave a message on your answering machine asking for personal information or send or request e-transfers.
How to Estimate Your Tax Refund
The best way to get an estimate about how much you can expect back on your taxes is to identify your income, tax bracket, and deductions you can make. If you’d like to get a quick estimate, use an income tax calculator.
What Tax Bracket Does Your Income Fall Into?
Your income will fall into one of four tax brackets. The higher your income, the more taxes you pay. The Federal Tax Rates for 2020 are as follows:
- A tax rate of 15% is taxed on total earnings up to $48,535
- A tax rate of 20.5% is taxed on total earnings between $48,535 and $97,069
- A tax rate of 26% is taxed on total earnings between $97,069 up to $150,473
- A tax rate of 29% is taxed on total earnings between $150,473 up to $214,368
- And a tax rate of 33% is taxed on total earnings over $214,368
Provincial tax rates are calculated the same way as federal tax (except for Quebec).
Identifying Credits and Deductions
Canada’s tax laws change all the time, which means the kind of tax credits and deductions you can take advantage of change often too. Deductions help reduce the amount of your income, which is what you get taxed on. Tax credits, like tuition fees, get applied directly to your tax payable.
How Can Students Spend Their Tax Refund?
If your tax credits are greater than your tax payable, you do not pay any tax. Any tax withheld during the year, will be given to you as a tax refund! The big question now is, what can you do with that money? There are a number of things you can do with it that will help you out financially in the long run.
Pay Off Student Loans and Any Other Debt
Paying down your student loan or any other debt may not sound like fun, but if you have debt with high interest, using your tax refund to reduce your debt could save you tens of thousands of dollars in interest expenses over the long run. The quicker you pay that debt off, the sooner you’ll have disposable income.
Open a Tax-Free Savings Account (TFSA)
Opening a TFSA is an excellent way to generate tax-free money. Unfortunately, more than half of all Canadians do not have a TFSA. That’s a lot of people missing out on an amazing investment vehicle.
Not only is the money you put into a TFSA tax-free, so is the money you make in the TFSA. Even when you withdraw it! The contribution limit for 2020 and 2021 is $6,000. You can make contributions to your TFSA either in a lump sum or periodically throughout the year. Which is great for Canadian students that get a tax refund and suddenly find themselves a little richer.
FastnEasyTax.com, Helping Students Minimize Their Taxes
If you’re a Canadian student and want to minimize your taxable income and maximize your annual refund, contact the personal income tax experts at FastnEasyTax.com
Since 2011, tens of thousands of Canadians have turned to FastnEasyTax.com for a convenient, fast, and affordable way to file their personal income tax. Certified by the CRA, we offer a variety of different products: a web application that allows you to submit your tax return online, without the need to download any software and a mobile app (eFile Canadian Tax Return) for all mobile platforms (Android, Apple, and Windows).
Our tax programs are easy to understand, the platforms are easy to use, and our customers get their tax refund back within 10 days. If you’re having difficulties, reach out to use, we’re happy to help our customers in any way possible and take pride in responding to all support questions within 24 hours.