Are you aware that there are several ways to save tax in Canada? Although paying taxes is an inevitable obligation for every Canadian citizen, there are strategies you can use to reduce your tax bill. As a responsible member of society, you must pay your taxes, but why pay more than you need to? By implementing tax-saving strategies, you can reduce your tax bill, even if it’s just a small amount.
1. Long-Term Capital Gains
One of the nice ways to reduce your tax bill is by using long-term capital gains. Profits you generate from selling assets you’ve had for a year or longer are considered long-term capital gains. As a result, these gains are then taxed at a lower rate than any short-term gains and regular income you have.
2. Start A Business
A business owner and their spouse can legally save thousands in taxes on their full-time job incomes by starting a business. This is because business income can offset computer equipment, travel, utilities, transport, and even housing costs.
3. Contribute Health Savings Accounts/ College Fund
Health savings accounts in Canada provide a great tax-saving advantage. You can use health savings to reduce your taxable income. Money can be withdrawn from a health savings account tax-free; at the end of a year, the leftover won’t be forfeited. You can exclude any contributions made to health savings from your gross income. Earnings in the account won’t be taxed. Much the same; when there’s a 529 plan in place to save for college, any earnings in the account can grow without being taxed, and when you withdraw the money to pay for college, it will not be taxed.
4. Charitable Donations
Making a charitable donation to a registered charity will enable you to claim non-refundable tax credits. Tax credits are reductions in taxes you owe the government. Tax credits for eligible donations can reach up to 33% of the donated amount but can also have an additional 24% added, depending on the province where you live.
5. Keep thorough records
Maintaining detailed records is essential to ensuring that you don’t miss out on any tax deductions. Keep electronic copies of scanned receipts and file hard copies as well, just in case you get audited.
6. File your taxes on time
If you owe money to the Canada Revenue Agency (CRA), be sure to pay your tax bill by April 30 to avoid late fees. Self-employed individuals have until June 15 to submit their taxes, but filing late can result in a penalty and interest charges.
7. Hire family members
If you own a business, consider hiring your spouse or child and paying them a salary. This can provide you with tax deductions for their salaries, and their first $12,069 of employment income is tax-free.
8. Separate personal expenses
Make it a habit to pay for business-related expenses with a separate credit or debit card. This will help you keep better records and avoid potential red flags with the CRA. If you have a grey area expense, like a bathroom renovation for your home office, note how it relates to your business on the receipt.
9. Take advantage of tax credits and deductions
There are many tax credits and deductions available to Canadians, but it can be difficult to know which ones apply to you. Some common tax credits include the Canada Child Benefit, the Working Income Tax Benefit, and the Disability Tax Credit. Deductions can include expenses like childcare, medical expenses, and charitable donations. Be sure to research which credits and deductions you may be eligible for and take advantage of them when you file your taxes.
10. Contribute to a Registered Retirement Savings Plan (RRSP)
Contributing to an RRSP is a great way to save for retirement while also reducing your tax bill. You can deduct your RRSP contributions from your taxable income, which can lower the amount of tax you owe. Plus, the money you contribute grows tax-free until you withdraw it in retirement.
11. Consider income splitting
Income splitting is a tax strategy that involves moving income from a high-income earner to a lower-income earner in order to reduce the overall tax bill for your household. This can be done through methods like paying a lower-income spouse a salary, transferring assets to a lower-income spouse, or setting up a family trust. It’s important to consult with a tax professional to ensure you follow all the rules and regulations.
12. Keep up with changes to tax laws
Tax laws and regulations can change frequently, so it’s important to stay up-to-date to ensure you’re taking advantage of all the opportunities available to you. Consider subscribing to a tax newsletter or following tax experts on social media to stay informed about any changes that may affect your tax situation.
Final thoughts
Working with an accountant familiar with your type of business can save you even more money by identifying tax deductions you may not be aware of. With these strategies and the help of a qualified professional, you can minimize your tax bill and keep more money in your pocket.
If you’re looking for advice on reducing your tax bill, visit the Nour Private Wealth website! As part of our professional services, we include investment planning and wealth planning> in Canada.
Contact us today for more guidance on the various ways to reduce your tax bill!
Disclaimer:
While Nour Private Wealth Inc. does not offer tax, legal, or accounting advice, we do want to stress the importance of seeking professional guidance in these areas. The information presented here is for informational purposes only and should not be relied upon as tax, legal, or accounting advice. We strongly encourage you to consult with your own tax, legal, and accounting advisors before making any financial decisions or engaging in any transactions. Seeking out professional advice can help you Save Tax in Canada and ensure that you are complying with all applicable laws and regulations.
