1. Build yourself an emergency fund: Take Advantage of a TFSA to Grow Savings Tax-Free
A Tax-Free Savings Account (TFSA) allows money to grow without paying tax on the gains. Ideal for young people who want to save without reducing their taxable income.
2. Once a salaried employee, Contribute to an RRSP as soon as possible
Even with a low income, contributing to a Registered Retirement Savings Plan (RRSP) helps reduce taxable income. Additionally, unused contribution room accumulates, so the deduction can be carried forward to a year of higher income.
3. Use the HBP and/or FHSA to Buy a First Home
Planning to buy your first home, the Home Buyers’ Plan (HBP) allows up to $60,000 to be withdrawn from an RRSP tax-free, provided it’s repaid within 15 years.
The First Home Savings Account (FHSA) allows contributions of up to $8,000 per year and $40,000 lifetime tax-free. Contributions are deductible, and withdrawals are tax-free for purchasing a property.
The HBP and FHSA can be combined.
4. Maximize Education Tax Credits
If tuition fees have been paid, tax credits can be claimed, and unused amounts can be carried forward to reduce future federal and Quebec taxes.
5. Claim the Canada Workers Benefit (CWB)
This federal credit is for low- and middle-income earners and can reduce taxes owed or result in a refund.
6. Always File a Tax Return
Even if income is below the lowest tax bracket, filing an income tax return helps to:
- Accumulate RRSP contribution room if there is employment income.
- Access tax credits and social benefits, e.g., GST credit, Quebec solidarity credit.
- Recover income tax withheld by the employer.
7. Claim Home Office Expenses
If the employer allows working from home, certain expenses (internet, electricity, office supplies) can be deducted.
8. Avoid Penalties on Tax Debt
If a person owes taxes, they should pay on time to avoid interest and penalties. Set aside a percentage of income if self-employed (please refer to point 1).
9. Invest Early and Wisely to Minimize Taxes
Investing as early as possible helps take advantage of time’s impact on income growth.
Some investments are more tax-efficient (TFSA to avoid tax on investment income, etc.).
10. Find out About Government Grants and Incentives
Depending on the province and situation, programs are available for young people:
- Education savings incentives
- First-time homebuyer credits
- Business start-up assistance
Managing finances right from the start can save thousands of dollars in the long run!
