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I know what you’re thinking. “Did she just use the words planning and teens in the same sentence?” Yeah, I know. But, it really can happen, I swear!

We have a super awesome teen (not going to mention any names…you know who you are) working for us. We were working on T4 preparation the other day, when she brought up some great questions about planning for her financial future. Our chat sparked this post.

Here is a snapshot of our Q & A:

Super Awesome Teen: Do I have to have income tax deducted from my pay?

You may not, but, your employer(s) have to deduct it unless you tell them otherwise. If you are certain that your total earnings will fall below the personal income tax exemption for the year ($11,138 federally, and $9,670 provincially for 2014), check the box that exempts you from having income tax deducted on your TD-1 Form

Even if your income will fall above these exemption amounts, review the other credits listed on the form against your situation, because they can bring you back down under the threshold.

These tips will leave more money in your pocket each pay, which you can use to save for your future. Remember, the earlier you invest, the greater the earning potential!

Super Awesome Teen: Why wasn’t CPP deducted from my pay?

CPP is only applicable to the earnings of individuals between 18 to 70 years of age. Make sure your employer is calculating this correctly by double checking your pay stubs regularly and making sure that CPP isn’t being deducted if you are under 18.

Super Awesome Teen: Do I have to file a tax return?

Nope. Unless the CRA has sent you a request you most likely don’t HAVE TO file one. But, you’ll want to. Properly filing a tax return ensures that you receive all of the credits to which you are entitled, and builds your RRSP contribution room.

Your RRSP contribution room is cumulative over your lifetime, so the earlier you start filing your returns, the more you will be able to contribute when you are ready to start.

If you aren’t financially inclined, most tax preparers offer discounted rates for students.

Super Awesome Teen: You mentioned RRSP contribution room. Should I be contributing to an RRSP already?

In most situations, no. Because the average teen’s income is so low, the tax benefit that comes from an RRSP contribution will not be of any benefit for a fair number of years. In addition, a teen has some fairly significant expenditures coming up in the very near future (i.e.; post-secondary education), which they may need to borrow for.

A better alternative to an RRSP contribution at this age is a contribution to an RESP or a TFSA (if you are over 18). Doing so will earn you a relatively decent return in the short term, and save you the cost of borrowing in the long term. A win-win.