As Bill Murray famously noted, the best way to teach kids about taxes is by eating 30% of their ice cream.
As children grow into little adults, it is our duty – and joy – as caregivers to see them through and celebrate the special milestone moments in life. Learning how to swim and ride a bike, graduating from high school, and getting a first job are moments that become happy memories we all grow up to remember and cherish.
When your little adult steps into his or her very first job, they become an official Canadian taxpayer. This means they are now a citizen who is contributing to the stability and growth of a city, province, and country. This should be a proud and celebrated moment not only for parents but for kids, too.
There is one problem, however. The Canadian tax system is complicated to understand – even for adults. The thought of explaining it to a young person can be a nerve-wracking thought and seen as a burden or stress in life, instead of being another milestone moment – and one we should be tremendously proud about.
“Great! When can we get this party started,” you say?
There is no magic number for sitting your kids down to talk about the birds and bees of banking. Just pay attention to the clues. For instance, when your child receives a monetary gift and expresses a desire to spend it, this is a good time to open the conversation on financial literacy – how and why we spend and save money. Conversely, when it comes to taxes, wait for the moment they receive their first paycheque. It is only then when we all come to realize that no, we will not be spending every dollar we earn, and for a very important reason!
As you and your little adult begin the journey of financial literacy, here are some questions that may come up – and some quick and easy answers to help:
Why Do We Pay Taxes?
Our local, provincial, and federal governments collect taxes to build up and sustain a pool of money. This is called “the public purse” and it is used to pay for services every Canadian can use and enjoy whenever they need to. This includes public schools, libraries, parks, healthcare, highways, and more. Daily electricity and staffing – like teachers, police officers, and fire fighters – are two things we don’t always think about, but are paid for using tax dollars, and both play a very important role in keeping our public spaces running smooth and safe every day.
Are There Different Kinds of Taxes?
There are three main direct taxes Canadians pay:
- Income tax: What we pay on the income we earn
- Sales tax: What we pay on the goods and services we buy
- Property tax: What we pay on the land we build or own our homes on
Generally, income taxes and sales taxes are collected federally by Canada Revenue Agency (CRA) and distributed to the provinces and cities. Quebec collects those taxes provincially, and provinces with specific provincial sales taxes will collect separately, too. Property taxes are collected at the municipal level. To learn more about how tax dollars are distributed, visit this page of the Government of Canada’s website.
How Do Taxes Work?
Taxes, or tax deductions, are set up automatically through your payments (think: shopping, cellphone bill) and your income (think: paycheque). When it comes to making a payment for a good or service, the retailer or service provider will automatically add the tax amount required to make the purchase. This is the sales tax. When it comes to receiving payment for the work you do at your job, a portion of your paycheque will be automatically re-allocated to help fund the public purse. This is income tax. Tax deduction percentages, or tax fees, depend on where you live, because each city and province uses tax dollars differently to serve communities based on their individual needs. Learn more about how taxes work by visiting this page of the CRA’s website.
Who Pays Taxes?
Every Canadian who has made an income by a public or private company pays taxes. Everyone pays their fair share, too, which is determined based on how much money you make in a year and which stage of life you are at. This includes everyone from high school students working part-time jobs to retired folks all across the country.
To instil in our children a sense of pride for how Canadians work together to contribute to protecting and advancing our cities, provinces, and country will create an environment for our little adults to grow confidently to manage finances and tax returns on their own. And importantly, to understand that paying for and filling out taxes is not a frustrating part of life, but actually, the glue that holds our communities together to grow happy, healthy, and safe!
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