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pipedreams,

Even if your income is low enough that you won't owe any taxes, it can be worth filing tax returns, even as a teenager with nominal income from babysitting/lawnmowing, because it helps you build up RRSP contribution room (18% of your employment income).

Now there's no reason to actually use that RRSP contribution room until you actually owe some taxes, but in effect you can stockpile lots of tax-deferred RRSP eligibility for use later in life when you land that high-paying job fresh out of University.

For example, assume you make $5,000 a year throughout University and don't have deductions for Canada Pension Plan. This amount is low enough that you don't have to file. But, that $5,000 earns 18% RRSP contribution room, or $900. At the end of 4 years, that's $3,600 in RRSP room.

Assume you graduate and immediately land a good job paying $60 k, but are still single and living the low-cost university life. You'll be in a position to save a lot of your salary. But you're also going to be owing Ottawa a lot of taxes. But you can reduce the amount of tax you pay by making additional RRSP contributions. In the top tax bracket, $3,600 in additional RRSP room will save you roughly 50% in taxes. You'll pay tax on it eventually, but not before 35-45 years of tax-free compounding. Never underestimate the power of 40 years of tax-free compounding. Even at 7% from a stodgy old bond, $4,000 can grow to $60,000 in 40 years on a tax-deferred basis. And that's a whole year of retirement expenses.

At 19, anything you learn about personal finance is gravy for later in life. But by the same token, don't sweat it too much. Looking back on my university days, the highlights weren't based on how much I saved (or didn't).

Todd
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