Tax Planning for Generation Z – Strategies for Every Stage of Early Life

Tax Planning is Important

Taxes may not be the first thing on a young person’s mind, but neglecting tax planning early in life can lead to missed savings opportunities and financial inefficiencies. Many Generation Zed* (hereafter GenZ) individuals:

 

Overpay taxes by not taking advantage of available credits and deductions. Examples include:

  • Tuition Tax Credit
  • Canada Workers Benefit
  • Employment Expense Deductions
  • Moving Expenses
  • Charitable Donation Credits

 

Don’t file tax returns when they should (even if they have little or no income)

The credits, deductions, and benefits noted above are often caught when using tax filing software, but if you don’t file a tax return, you are going to lose out. Among the benefits of filing a tax return, even if your earned income is insufficient to require you to pay taxes are:

 

  • Creating RRSP contribution room that you can use later when your income is higher;
  • Claiming GST/HST rebates that will be paid to all income-qualified individuals or households even if there is no tax payable;
  • Establishing credit for future benefits such as the Canada Child Benefit or Old Age Security, which are established based on the filing of your tax returns;
  • Carrying forward unused credits such as the tuition tax credit allows you to apply the credits against future income taxes.

 

Fail to optimize savings tools like the TFSA, RRSP, and FHSA from the beginning.

  • All three of these account types come with tax advantages and are ideal for certain circumstances.
  • It should also be noted that GenZ extends into the age of minority in Canada, so the TFSA and FHSA are not available to all members of this generation. The RRSP only requires earned income and filing a tax return irrespective of age (until the year you turn 71).

 

Enter the workforce or start a family without a solid understanding of how taxes affect their financial situation.

  • At work this can be seen in inaccurately completing the TD1 Personal Tax Credits Return; not taking advantage of employer benefits like group RRSPs, pension plans, or employee stock purchase plans; or not understanding how different income sources are taxed.

 

When GenZ individuals form households and have children, new tax obligations and opportunities arise, including:

  • Filing a tax return to qualify for the Canada Child Benefit (CCB); taking advantage of the child care expenses deduction (applies to the taxable income of the lower-income spouse/partner); opening an RESP (Registered Education Savings Plan) which allows for government grants, tax-deferred investment growth, and taxation of the grants and growth in the hands of the beneficiary child when withdrawn, usually at a very low rate, if at all.

 

  • Combining certain opportunities like the Medical Expense Tax Credit or the Charitable Donation Tax Credit or opening a spousal RRSP in the name of the lower-income spouse so that it is easier to split taxable income in retirement.

 

  • Adjusting tax withholding when a new child comes into the household and one spouse takes maternity/parental leave.

 

The good news? There are some small steps taken early on that can make a big difference over time.

 

Tax Planning is Complicated

Tax planning for GenZ is complicated because of the different life stages within the generation. While some are still minors earning their first paycheques, others are already married and raising children. Each group faces unique tax challenges and opportunities.

 

Generation Z Minors Living at Home

Age of Majority: 18 years old Age of Majority: 19 years old
Alberta British Columbia
Manitoba New Brunswick
Ontario Newfoundland and Labrador
Prince Edward Island Northwest Territories
Quebec Nova Scotia
Saskatchewan Nunavut
Yukon

 

Do minors need to file a tax return?
  • The simple answer is yes if they earn an income. They are unlikely to pay tax unless their income exceeds the basic personal amount, but it is still worth filing for at least two reasons:
    • Earned income generates RRSP contribution room that they can use in the future.
    • If income tax was withheld from a part-time or summer job, filing a return ensures they receive a refund of any overpaid taxes.

 

Generation Z of the Age of Majority – Single, in Full-Time Post-Secondary Education

Tuition tax credits: how they work and whether to transfer them to parents.

The tuition tax credit helps reduce income tax owed by allowing students to claim eligible tuition fees paid. However, because many students have little to no taxable income, they may not immediately benefit from the credit. Here’s how it works and the key decisions to consider.

 

Tuition fees are eligible, including tuition from many educational institutions outside of Canada. Textbooks and living expenses are not.

 

The federal government offers a 15% non-refundable tax credit. A non-refundable tax credit means that you will not receive a refund to the extent that the credit brings your income tax owing below zero. Some provinces provide an additional tuition tax credit.

 

If you paid $5,000 in eligible tuition fees, a 15% tax credit means that you would be able to reduce your tax owing by $5,000 x 15% = $750.

 

If a student does not owe enough in taxes to take full advantage of the available tax credits, they can carry it forward to use in a future year. This carry-forward amount is tracked by the CRA and documented in your Notice of Assessment.

 

Alternatively, the student can transfer up to $5,000 per year to a parent, grandparent, or spouse/common-law partner who has tax payable. Unlike the student, parents and other recipients are not permitted to carry forward unused amounts.

 

The benefits of opening a TFSA early.

If you are 18 or 19 (see the table above for ages of majority by province or territory), you may want to open a TFSA even if you cannot contribute much to the account. Allowing any savings to grow tax-free is a potential benefit for students.

 

Full-time students typically do not have a lot of extra cash available to contribute to a TFSA. However, a TFSA may be useful for saving money earned during a summer job until it is needed for expenses.

 

Another source of money to invest inside of a TFSA may be the Post-Secondary Education Payment (PSE) which is the tax-free return of the original contributions made to a Registered Education Savings Plan (RESP) by the subscriber(s), typically the parents.

 

Filing taxes to receive GST/HST credits and other benefits.

If you are 19 years old and a resident of Canada for tax purposes, you qualify to receive the GST/HST credit. Currently, if you are single, you could get up to $519.

 

Generation Z of the Age of Majority – Single, Early in Their Working Careers

Choosing between TFSA and RRSP: which is better at this stage?

This choice depends on a variety of factors:

  • Taxable income: The lowest federal tax bracket in 2025 ends at $57,375. Provincial tax brackets vary, but if your income is below this level, you may find it more beneficial to contribute to your TFSA as the benefit of the tax deduction is less meaningful.
  • Short-term purposes: If you plan to withdraw the money contributed in a relatively short time range, then the TFSA is probably a better choice.
  • Home purchase: In that case, the FHSA is probably a better choice than either the TFSA or RRSP because you get the same income deduction from an FHSA as you do from an RRSP and, if you buy a qualifying home within 15 years of opening the account, you get the same tax-free withdrawal that is available via the TFSA. You may also want to use the Home Buyers’ Plan (HBP) to withdraw up to $60,000 from your RRSP without tax withholding, as long as you pay back the amount withdrawn over 15 years.
  • Returning to school for additional education: Similar to the HBP, with the Lifelong Learning Plan (LLP) you can withdraw up to $20,000 (maximum $10,000 per year) from your RRSP to assist you with your education expenses. In this case, the amount must be repaid over 10 years.
  • Whether your intent is a home purchase or going to school, a TFSA can be a helpful source of additional funds since there is no obligation to repay the amounts withdrawn, nor are there tax consequences.
  • Long-term purposes: If we consider saving for retirement as the most important long-term purpose for your money, we may wish to return to the first factor of taxable income. Although it is typically the case that your taxable income in retirement will tend to be lower than your taxable income while employed, which argues for the RRSP, the TFSA could be the right choice in your early years because of the flexibility it offers. Both are excellent vehicles for saving for retirement and since they have different tax profiles, using them together can add tax diversification to your investment portfolio.

 

The importance of keeping track of RRSP contribution room.

This applies to the TFSA and FHSA as well. If you overcontribute to any of these accounts, you are subject to a tax of 1% per month on the excess amount in that month.

The RRSP has the same rules, but there is a bit of leeway in that the penalty does not apply until you exceed your RRSP deduction limit by more than $2,000.

 

Whether to contribute to an FHSA.

If you plan to buy a home: The RRSP-like deductibility of contributions combined with the TFSA-like tax-free withdrawal when used to purchase a qualifying home favour the FHSA.

 

If you don’t plan to buy a home: In this scenario, it may still make sense to open an FHSA.

  • You may change your mind. An FHSA can stay open for fifteen years.
  • FHSA contributions can be transferred to your RRSP if you choose not to buy a home without impacting your RRSP contribution room. If you have maximized your RRSP contributions, not using your FHSA for a home purchase simply expands your RRSP contribution room by up to $40,000.
  • The only argument I can see for not opening an FHSA is if you are in a lower taxable income bracket and do not expect to get into a higher bracket anytime in your career.

 

Work-related tax deductions and credits (e.g., union dues and employment expenses).

There is a movie trope of young adults starting their careers who are dismayed at all the deductions that come off their first paycheques. I suppose we all are at first. Some are applied before tax is calculated, such as contributions to group RRSPs or employer-sponsored pension plans, while others are deducted after tax. For the latter, a great example is the long-term disability insurance premium. An after-tax deduction effectively means the cost is borne by the employee, which means that, if an illness or injury results in a successful long-term disability claim, the payments are tax-free.

 

Other potential deductions to be aware of include union dues, professional fees, home office expenses, vehicle expenses (excluding commutes to work), or a tradesperson’s tools that were purchased for work.

 

Student loan interest deductions.

If you borrowed money to gain a post-secondary education and the provincial portion was interest-bearing, you will be able to deduct the interest (not the principal) on the borrowed amount. If you do not have any tax payable in the year that you paid interest on a loan, you can carry the interest forward for up to five years.

 

Generation Z of the Age of Majority – Married, Early in Their Working Careers Without Children

The tax advantages of spousal RRSPs

Canadians have been able to split RRIF income after age 65 for many years already so some do not see the value in using spousal RRSPs. However, there are several reasons why it still might be a useful tool beyond the standard benefits of the tax deduction that the higher-earning/contributing spouse receives and the consequent ability to shift income in retirement to the lower-earning spouse, particularly in the years before age 65.

 

  • A source of income during a sabbatical;
  • A source of income during a maternity/parental leave;
  • A source of additional income if unemployed;
  • A source of income during enrollment in additional studies; and
  • A source of income during early retirement (well before age 65).**

 

How to optimize TFSA and RRSP contributions between spouses.

Optimization of contributions to these accounts is about achieving the same amount of income with less tax being paid. As noted above, a spousal RRSP is one way of doing this. When calculating how much to contribute to either your own RRSP or a spousal RRSP, one factor to consider is the contribution to a group RRSP, defined contribution, or defined benefit pension plan. The direct impact of these employer-sponsored plans will be apparent in the Pension Adjustment you see on your T4 slip, which reduces the room you have to contribute to either a personal or spousal RRSP. The point is that the goal is not necessarily to equalize your respective personal/spousal RRSPs but to contribute in such a way that you will have approximately equal taxable incomes in retirement.

 

The TFSA can be optimized along similar lines, that is, by having approximately the same amount of tax-free assets to draw on in retirement, if the TFSA is intended as a separate retirement savings vehicle. In this case, spouses can achieve this goal if the spouses equalize their contributions. If, for example, Rachel has more income than Jake, Rachel can provide some money to Jake so that he can maximize his TFSA contribution. Rachel would also maximize her own TFSA contribution. This is more tax-efficient because it allows the household to maximize TFSA contributions, which is $7,000 per person in 2025, or $102,000 per person if you have been eligible since 2009 (but that would make you at least a millennial if not older).

 

Coordinating employer benefits and tax deductions.

If both spouses have group health and dental benefits, it makes sense to coordinate those benefits so that the premiums paid (deducted) are not doubled up on unnecessarily. However, spouses may find that expenses for prescriptions because of a chronic illness, for example, are higher than a single plan can handle. In that case, it may make sense to retain the benefit packages for both spouses or focus on a higher-level option for one spouse and a lower-level option for the other spouse.

 

Generation Z of the Age of Majority – Married, Early in Their Working Careers With Children

Maximizing the Canada Child Benefit (CCB)

The CCB is a tax-free benefit based on family income. With this in mind, it may make sense to contribute to RRSPs and/or FHSAs to increase the benefit amount.

 

How to use an RESP to save for their child’s education

Parents who expect their children will attend post-secondary education will want to take advantage of the benefits offered by the Registered Education Savings Plan (RESP). The RESP is a way to save for your child’s education in a tax-advantaged manner. Subscribers (usually parents) can receive a 20% federal government grant based on annual contributions not exceeding $2,500. This works out to $500 per year. If a year or more has been missed, subscribers can catch up by contributing up to $5,000 per year, which results in a grant of $1,000. However, do note that if subscribers contribute $7,500 to catch up on two missed years plus the current year, the grant will still be limited to $1,000.

 

Each beneficiary child can receive up to $7,200 in grant money which means you can maximize the grant with $36,000 in contributions per child. The additional $14,000 to reach the $50,000 contribution limit will not attract any grants but it will still grow tax-deferred, and any growth will be taxable in the hands of the beneficiary child upon withdrawal.

 

More information can be found in two blog posts that I have written in earlier years, here and here.

 

Childcare expense deductions

Childcare costs, which include daycare, after-school programs, and nannies are tax-deductible but must be claimed by the spouse with the lower net income. Note that the maximum amounts that can be claimed are $8,000 for each child under age 7 by the end of the year, $5,000 for each child between ages 7 and 16, and $11,000 for each child who qualifies for the disability tax credit.

 

Income splitting opportunities within the family.

In addition to spousal RRSPs, another strategy is available to the small business owner. For example, one spouse might run a high-earning small business and hire the other spouse to work for the business as a bookkeeper. This shifts income from the higher-earning spouse to the lower-earning spouse. It is important to document this arrangement in case the CRA asks for confirmation.

 

 

Tax Planning for Generation Z – Recapping the Advantages

GenZ can gain a major financial advantage by understanding and using tax strategies early in life. The key insights for each group include:

 

  • Minors & Students: Filing taxes isn’t just about owing money—it’s a way to build future RRSP contribution room and access valuable credits.
  • Early Career Professionals: Choosing the right tax-efficient savings vehicle (TFSA, RRSP, or FHSA) can set them up for success.
  • Married Couples: Tax planning as a couple means thinking strategically about RRSPs, deductions, and benefits.
  • Parents: Government benefits like the CCB and the RESP and deductions for families can significantly reduce their tax burden if used wisely.

 

By taking these actions now, GenZ can avoid common tax pitfalls and build strong financial habits for life.

 

Tax planning doesn’t have to be overwhelming—it just takes a little knowledge and initiative. Starting early can lead to significant long-term benefits, helping GenZ build wealth and financial security.

 

*I will tolerate the mispronunciation of the last letter of the English alphabet as “Zee” on occasion, but not while the U.S. Government is threatening unjustified tariffs and the annexation of Canada. GenZ includes those born in the years 1997 to 2012, i.e., those who turn ages 13 to 28 in 2025.

 

**List adapted from a post on LinkedIn by Zael Miransky.

 

This is the 278th blog post for Russ Writes, first published on 2025-02-03

 

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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.

 

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