While 87% of millennials are confident they take advantage of all tax deductions, credits or savings available to them, a much smaller ratio is confident in their understanding of how investments are taxed, according to a study by BMO Nesbitt Burns Inc. in Toronto.
The study found that only 41% of 18 to 34 year olds are familiar with how capital gains are taxed, and 40% are aware of how dividend income is treated from a taxation perspective.
It is encouraging to see millennials’ high level of confidence regarding the basics of preparing tax returns, says John Waters, vice president, head of tax and estate planning at BMO Nesbitt Burns.
However, navigating the tax system and how it impact investments can be challenging so Canadians need to further educate themselves through their own research or by working with a professional, he adds.
“Tax planning should be a year-round activity for everyone to make the most of valuable tax saving strategies,” says Waters.
Millennials are also less confident than their baby boomer counterparts on key tax issues. For instance, 69% of millennials are confident regarding how their income is taxed compared to 77% of baby boomers between the ages of 50 and 68. While three-quarters of baby boomers are comfortable with their knowledge on the tax implications of contributing to a registered retirement savings plan, only 63% of millennials say the same. And 62% of millennials are confident regarding the tax implications of having a tax-free savings account as opposed to 72% of boomers.
The study also asked millennials about the status of their tax filings. More than half, at 53%, plan to file their taxes before the April 30 deadline, while 44% report they have already filed their taxes. And 54% of this younger group will be preparing their own tax returns, with 32% planning to use tax-specific software to file their returns.