Most people know income tax is deducted from every paycheque and they need to file a tax return. If you earned a small amount of money during the year it may not seem worth it to file a tax return, but it may be a smart choice.
Basic personal amount: Everyone who is a resident of Canada can claim the basic personal amount, which for federal purposes is $11,038 in 2013. So you can earn at least this amount before you begin paying federal income tax. Each province also has a basic personal amount, but this varies from $17,593 in Alberta to $7,708 in Prince Edward Island. So if you live in PEI and you earned $10,000, you will not be paying federal tax but you might be paying provincial tax. If you live in Alberta and earn $15,000, you might be paying federal tax but you will not be paying provincial tax.
CPP contributions: If you are between the ages of 18 and 65, you are obligated to pay Canada Pension Plan premiums from your paycheques. However, you can claim a non-refundable tax credit both federally and provincially for your required contribution. If you earned$13,000, your require contribution for 2013 will be $470.25, so you will get non-refundable tax credit for this amount. When added to the basic personal amount, this means that your first $11,508.25 will not be subject to tax.
EI contributions: You are also entitled to both a federal and provincial non-refundable tax credit for your EI contributions, which everybody has to pay regardless of their age. If you earned $13,000, your required EI contribution for 2013 is $244.40. So if you add this to your basic personal amount and your amount for CPP contributions, your first $11,752.65 will not be subject to tax.
Canada Employment Amount: If you earned employment income and received a T4 in 2013, your first $1,117 will qualify for the federal Canada Employment Amount. The credit is really that simple. So if you earned $13,000 in employment income, you would be able to claim the basic personal amount, the amounts for CPP and EI contributions and the Canada Employment Amount and your first $12,870 would therefore not be subject to federal tax. Yukon is the only province or territory that provides a matching Canada Employment Amount, so unless you live in the Yukon, this credit will not help reduce your provincial or territorial tax.
If you earned below the minimum amounts but had income tax withheld from your paycheques, you can get the money back by filing a tax return. However, you will have to wait until your employer issues your T4 slip so you can make the claim. And even earning only a small amount of little income helps build RRSP contribution room, which may come in handy when you earn more.
Most people feel they pay their fair share of income tax over their working lives, so if you paid tax when you didn’t need to, file a return and enjoy the refund.