Why is tax literacy important?

Taxes are part of our everyday lives.

As consumers, we pay sales taxes regularly on items we purchase. When we enter the workforce and start earning money, we are required to report our income and pay income taxes. Our taxes pay for important public services like hospitals, schools and roads.

When we understand the personal income tax system, we can better follow the tax rules.

Ontario’s personal income tax system is based on self-reporting. This means that each year we earn money, we are expected to complete an accurate Income Tax and Benefit Return (tax return) and send it to the Canada Revenue Agency (CRA) by April 30 of the following year. Failing to do so could result in us being charged penalties and interest.

When we file a tax return, we can get money back.

Even if we do not make money or have a job, we should start filing tax returns before we turn 19 years old. The tax return is considered an application for tax-free government payments (tax credits and benefits) that can help us pay for living expenses.

Understanding the personal income tax system is an important part of managing our financial resources responsibly.

When creating a budget, we need to know how much tax may be taken off our pay cheque. We also need to consider what tax credits and benefits we can get by filing a tax return each year.

Information is key

Government credits, benefits and programs change over time. These changes may impact what government supports are available to help us pay for various living expenses (if we qualify for the supports).

It is important to stay up-to-date. There are many online government resources available to help us understand the tax system and be informed about new or changing government programs.

Online research

Browse the webpages below to learn more about how personal income tax works, the tax return, and tax credits and benefit programs. Use the information learned to answer the questions in the next section.

Questions

Work independently or in a group to answer the following questions

  • What is income? What are some examples of taxable and non-taxable income?
  • What is personal income tax?
  • What is an Income Tax and Benefit Return (tax return)?
  • Why should we file a tax return?
  • Why should we file a tax return even if we don’t earn any income?
  • When should we file our taxes?
  • What is a tax credit? Can you give an example.
  • What is a benefit? Can you give an example.
  • What tools are available online to help us find and calculate tax credits or benefits we may be eligible for?
  • How do taxes, credits and benefits affect our personal budget?