Taxes: the dreaded word your parents fear that comes every January in the wake of the expensive holiday season. As a student, you may not yet have had an unfortunate date with taxes — in fact, if you're lucky, someone else is doing them for you. As a student, quite often you are the one spending your newest tax reimbursement, while everyone else around you receives their notice that it is time to file their tax return.

You may not have been aware of it, but taxes have been a part of your life since the day you made your first purchase. Taxes are what fund the programs and services that the government provides to its citizens.

There is no way of getting out of paying taxes, they are mandatory and everyone must pay them; in fact if you are caught not paying your taxes in Canada, you are going to get in some serious trouble.

Not paying your taxes will affect more than just your wallet; it will also have an impact on people who use programs such as Employment Insurance. Employment Insurance provides assistance to a person who loses their job unexpectedly and who may not have enough support to keep them afloat until they get back on their feet. When some people don't pay, the rest of the taxpayers have to pay more to compensate.

Know the types of taxes

There are two basic types of taxes: indirect and direct. Indirect taxes are applied on the purchases that you make. In Ontario, the indirect taxes taken by the government are referred to as HST, or Harmonized Sales Tax. You probably have daily encounters with HST, as it's everywhere you go, from the gas you just filled your car with to the new pair of shoes you just bought. The HST is a combined tax of Provincial Sales Tax and General Sales Tax.

Each province has a different way of applying indirect taxes. Some, like Alberta, don't have a provincial or harmonized sales tax; they only have federal tax known as GST. This is because the province is resource-rich and generates enough revenue that they don't need to tax residents as heavily as other provinces.

Those of us unfortunate enough to have daily run-ins with HST know the pain of paying 13 per cent more for everything. The good news is, you're helping lighten your province's debt; the bad news is, once you cross the boundary into the workforce, you enter the confusing world of direct taxes, also known as income tax.

First job, paycheque shock

As an example, let's look at Alex, who's working his first summer job. He's working as a camp counselor, and he cannot wait to spend his first paycheck. That $700 high-definition television is finally within reach. He calculated that his first paycheck should be $700 — he's working for $10 an hour for seven hours a day for five days a week — two weeks of work should be enough for the television. Friday rolls around and pay stubs are being handed out. “Wait a minute, what is this?” he asks as he's handed his cheque. “I only got paid $600 — where did the rest of my money go? What are these deductions?”

What Alex didn't realize was that, as he is now part of the workforce, the government takes income taxes from him in different ways as well as certain deductions. In Alex's case, his employer did what's known as a source deduction, where the tax comes directly out of his pay. The amount of money you are taxed is based on your taxable income.

In addition to the income tax you have taken off your paycheque, you may also have deductions taken off as well. There are different types of deductions. The most common deductions that will appear on your pay stub as a student include the Canadian Pension Plan. The CPP is a plan that Canadians start paying into at age 18 when they start working. The CPP assists the contributor with income if they retire, die or become disabled. One day, far off into the future, when Alex retires, he will reap the rewards of his contributions.

Alex thinks about it. “It can't be that bad if I get it back one day, but what about these other deductions?” Well, Employment Insurance (EI) is a plan that working individuals must pay into. The Canadian Revenue Agency describes EI as “providing temporary financial assistance to unemployed Canadians who have lost their job through no fault of their own, while they look for work or upgrade their skills or Canadians who are sick, pregnant, or caring for a child or those who must care for a family member.” Not everyone is approved for EI benefits, but it is beneficial to have the option of applying for the program in case of unexpected circumstances.

Get some money back (or pay even more)

If you thought that was a lot of information, you haven't seen anything yet. In April, Ontarians are expected to file their tax returns. The tax return is helpful in determining if you are eligible for reimbursement for overpaying taxes, if you receive any tax credits or benefits or if you need to pay more taxes.

As Alex is a student, he may qualify for certain tax credits or benefits. He has just gotten accepted to Fanshawe for Business Administration and is ready for his big move from Toronto to London. One of the things he may be able to claim on his tax return is the cost of his moving expenses, depending on his criteria. If he's approved, he could receive some money from the government to reimburse him for his moving expenses.

Other types of reimbursement include non-refundable tax credits such as the public transit amount, tuition, education and textbook amount that help in paying the amount of federal tax you owe but of which you cannot be refunded for. For more details on whether you qualify for these tax credits, you can go on the Canadian Revenue Agency's website, which helps first-time tax return filers. If you want a more in-depth look at taxes, from their origins to how they affect you, the CRA has a step-by-step guide.

Learning to do your taxes: A step-by-step guide
tinyurl.com/CRA-Learning-Taxes

Financial Consumer Agency of Canada list of student tax credits:
tinyurl.com/student-taxes2014