Taxes, how what why?

[jeeva86]

Hey guys, I tried learning about taxes from the boards and from the CRA website but I still don't get many things. This is an area in which no light has shed for me. I'm 19 years old attending university(3rd) and working part-time in the summer. All I know is that somehow if you're making below XXX dollars you get a refund from the gov't. Some questions I have.

1. What benefit do I have for filing a return?
2. What is this whole tax business?
3. What does it mean that when you make a donation say, they say its a tax creditable gift? How does that benefit me?
4. I got a letter with the $100 cheque students get :S and it said something about "you still have $xxxx left that can be used towards your tuition amount" something along those lines.

Sorry for the noob questions but I just don't get it. Like what am I supposed to keep during the year that will benefit me.

Thank you in advance for your help

[TotallyKiller]

Hey guys, I tried learning about taxes from the boards and from the CRA website but I still don't get many things. This is an area in which no light has shed for me. I'm 19 years old attending university(3rd) and working part-time in the summer. All I know is that somehow if you're making below XXX dollars you get a refund from the gov't. Some questions I have.

1. What benefit do I have for filing a return?
2. What is this whole tax business?
3. What does it mean that when you make a donation say, they say its a tax creditable gift? How does that benefit me?
4. I got a letter with the $100 cheque students get :S and it said something about "you still have $xxxx left that can be used towards your tuition amount" something along those lines.

Sorry for the noob questions but I just don't get it. Like what am I supposed to keep during the year that will benefit me.

Thank you in advance for your help

First off, although I appreciate the seriousness of this topic, you should really get used to "Google" as this is a hard thing to sum up. Get the basics online yourself and ask the specific, confusing questions here.

1) If you don't file a return and you owe taxes, then you can get penalized, and if severe enough, jailed. If you don't owe anything, then you never need to file.

2) That's the broadest question I've ever heard here. You are going to have to look it up.

3) When you make a donation, or anything that they say is "tax deductible" you can document this in your tax return and it should reduce the amount of taxes you pay. If you are a student, or have a lower income, then this will benefit you much less. I'm not sure what the caluculation is, but for you it would probably mean a donation of $20 would save you like $1-2. Keep whatever receipts that they have provided (most are marked as tax receipts, or "keep for tax purposes")

4) When you are a student and you get a loan, or money to go towards your tuition, you can often write that amount off on your taxes in following years. This can greatly reduce the amount of taxes you owe, or increase your refund. I had to borrow about $18k for school and it increased my refund a few years later by about $3k.

These are important questions, but so broad with such significant implications, that this is not the place you want to go for all your info. Do some research yourself online (there are a ton of noob FAQ's) and then ask a pro.

[jeeva86]

Googling often refers me to the cra website since canadian taxes are probably different from others. Ok I'll try to get some simple questions.

1. Is an OSAP loan considered income?
2. How can you tell right of the bat that you'll get a refund vs. an amount oweing? Say I'll only make $3000?

[Rosico]

Where do you go to school - try talking to one of the Financial Aid people to help you understand OSAP.

2) AFAIK that is below the personal exemption amount so no, you won't have to pay tax is that is your total income for the year.

[charliebrown]

Googling often refers me to the cra website since canadian taxes are probably different from others. Ok I'll try to get some simple questions.

1. Is an OSAP loan considered income?
2. How can you tell right of the bat that you'll get a refund vs. an amount oweing? Say I'll only make $3000?

1) Think it through

You're borrowing money, you have to repay it...should it be considered income? (ok, technically, if you get really specific about shareholder loans that you dont repay, then there's a tax issue)

OSAP loans are not considered income...otherwise, you'll be paying tax AND itnerest. However, when u take the loan and invest it (i.e. ING, stocks whatever) and that generates interest, the interest component is taxable


2) When you start working, your employer will ask you to fill out a form called the TD-1. On this form, you indicate how much you'll make in 1 yr from all sources.

The info is used to determine if there's a point to withhold tax. The way our tax system works is that the employer has the responsibility to holdback a % of your pay for tax (as opposed to one big tax bill at the end of the yr).

Each person has a "personal amount"; somewhere in the neighborhood of $8500 for 2006. Any amount below this number will be tax free

So, if you're going to make less than $8500 a yr, for federal tax purposes, you should not be paying any income tax (s/b similar for provincial tax, since provincial tax is usu just a fixed % of ur total federal tax)

HOWEVER, when you're working, regardless of how much you make, everyone contributes to CPP/EI. I believe in total, they add up to around 3% of ur pay.

[gedwards]

To answer earlier questions...

Although you don't have to file a return if you have no income there are benefits to doing so (beyond the whole going to jail thing). There are a number of credits or money back you may be eligible to receive from the government (ie GST) depending on your situation. If you don't file a return you will lose out on getting this money.

4) When you are a student and you get a loan, or money to go towards your tuition, you can often write that amount off on your taxes in following years.

It is not the loan that allows you to write off amounts on your taxes. When you are a student you get to claim the tuition that you pay and you also get some tax credits for each month you are in school & also some tax credits for textbooks. If you do not make enough money to use your education or tuition credits you can write them off on your taxes in future years (when you are making more money and will get more back then). So the part about having $XXXXX to use towards your tuition amount means you have paid for eligible tuition that you have not yet claimed on your income taxes. If you only make $3000 you should not use this tuition and education credits (or the charitable donations amount for that matter) on your current tax return because it will do you no good. Keep them and use them in a year where you make more money.

As an OSAP loan is just that - a loan that you have to pay back - it is not taxable income.

There is no "right off the bat way" to tell how much you will get back. There are many many factors and various credits that all come together to determine your final refund. That said $3000 is not enough to pay taxes. So as a starting point you can look at your total paystub for the year to see how much income tax was deducted. You will get all of that back. You will possibly be entitled to even more depending on what credits you are eligible for.

[jeeva86]

Thanks for the answers guys.

How do you know which credits you are eligible for? Looking at my pay stub now. I see the following deductions:

Legislated Deductions:
- CPP Employee Contribution
- EI Employee Premiums

Other Payments/Deductions:
- Union Dues

What's union dues? Does it have to do with being on the union, which I have no clue what is?

So basically, if I were to make less than that amount, 8500 for the 2006 year, I should be getting a refund. However, if I were to make more than that then using my tax receipts for gifts and the tuition thing would come into play and as a result the amount oweing would decrease. Does that mean making a gift would not actually mean I used my money?

I know my dad makes more than 8500 / year but yet he files his taxes and he gets about 1700 back, so I don't get it. Which deductions on the paycheque relate to taxing?

[don242]

Thanks for the answers guys.

How do you know which credits you are eligible for? Looking at my pay stub now. I see the following deductions:

Legislated Deductions:
- CPP Employee Contribution
- EI Employee Premiums

Other Payments/Deductions:
- Union Dues

What's union dues? Does it have to do with being on the union, which I have no clue what is?

So basically, if I were to make less than that amount, 8500 for the 2006 year, I should be getting a refund. However, if I were to make more than that then using my tax receipts for gifts and the tuition thing would come into play and as a result the amount oweing would decrease. Does that mean making a gift would not actually mean I used my money?

I know my dad makes more than 8500 / year but yet he files his taxes and he gets about 1700 back, so I don't get it. Which deductions on the paycheque relate to taxing?

I think you really need to print off a tax form and fill it out. It will all become clear then.

You may get some of your CPP and EI deductions back, depends how much yopu make and if you paid the right amount.

Union dues are what you pay to be a member of the union. You won't get them back unless your work term was short enough that you did not actually become a member. Generally you pay union dues from the start and after 3 months or so, you become a member. If you are not working before you actually became a memeber then you can get your union dues back. But that must be done through your union, not through your tax submission.

If you make less than 8500 in a year you should get all taxes you paid back. If you make more then it will depend on how much you made and if you paid too much or too little tax. Your dad is obviously paying too much tax per paycheque and therefore gets it refunded. This may be due to RSP contributions lowering his taxable earnings or it may be due to any number of reasons such as wife not working and therefore gets her personal amount, significant charity donations.

Gift donations will in a sense reduce your taxable earnings (though it is calculated differently). If you donate $100 you will receive a small percentage of that $100 back (I forget offhand the amount and it depends on amount donated) since donations are not taxed.

Tutition can be used to reduce your taxable earnings as a tax credit. But depending on your tax bracket, I would consider carrying it over till you get out of school and would benfit you more since you will be in a higher tax bracket.

Again, print off a tax form and fill it out yourself. Only then will you understand some of the questions you have.

[Philippe]

1) If you don't file a return and you owe taxes, then you can get penalized, and if severe enough, jailed. If you don't owe anything, then you never need to file.

Filling your taxes, even if you don't owe anything in the end, still has the advantage to rack up RRSP allowance for the following years.. thus I'd fill my taxces regardless of owned taxes.

[jeeva86]

I donno if this is along the same lines but what's an RRSP. I thought it was a retired savings plan. Then again I hear people doing it at 21:S, which confuses me more.

Yes, I'm gonna fill out a tax form. I was doing the online tutorial and they had links and links to all kinds of forms, which makes me wonder how do I know which forms I'm actually supposed to fill out. Is there a page somewhere on the CRA website that lists all tax forms? Thanks again.

[dark169]

I donno if this is along the same lines but what's an RRSP. I thought it was a retired savings plan. Then again I hear people doing it at 21:S, which confuses me more.

Yes RRSP is for retirment, but if you wait till your 40's or 50's you'll never be able to retire well. Evey $1 you put into your RRSP in your twentys is equal to 3 or 4 when your in your 40's. Not to mention you can borrow 20k out of your RRSPs for your first home.

[jeeva86]

Interesting, how do I set up an RRSP? Is it done only through banks or other companies as well? I'm just wondering if this will affect my osap and me not receiving funds.

[don242]

Interesting, how do I set up an RRSP? Is it done only through banks or other companies as well? I'm just wondering if this will affect my osap and me not receiving funds.

Banks, fund companies, financial advisor...there are lots of options to setup the RRSP. For you, probably best to go to a bank.

As far as OSAP goes, it has been awhile but I believe on your application you have to report all your invested assets including your RSP. How an RRSP affects your OSAP amount, that I don't know.

Since you are probably in the lowest income bracket since you are not making much yet, I probably wouldn't put the money in an RSP. Better to invest it and move it over to an RSP later (higher income) when it will be beneficial to your taxes. Part of the idea of an RSP is to put money in an RSP when you are making a high income and therefore do not pay tax on it then. Then when you retire (supposedly lower income) you take the money from your RRSP and then you pay the taxes on it. You are basically deferring the taxes you pay on that money till you retire and are in a lower income bracket and therefore pay less taxes on that money.

[jeeva86]

Things are starting to make sense. Thank you all for you help.
Say I were to open a GIC, would this affect me or would I have to declare this when doing my taxes?

[don242]

Things are starting to make sense. Thank you all for you help.
Say I were to open a GIC, would this affect me or would I have to declare this when doing my taxes?

When you buy a GIC you are using money that has already been taxed. The only thing you would have to report is the interest earned when you cash out the GIC. Only any interest earned would be basically considered as income.