Navigating the tax system here in Canada is a real challenge. Most business owners don’t know all the credits and deductions available to them. It’s important that you sit down with your accountant and financial advisor to do tax planning.
In this article we have provided 5 Tax savings tips that could help reduce your tax bill and retain more income.
Use TFSAs and RRSPs
Savings plans that offer tax-advantages are a great way to slower your tax bill. Tax-Free Savings Accounts (TFSA) let you withdraw money without penalty, and Retirement Savings Plans (RSPs) allow you to protect your income from tax.
- The annual TFSA contribution limit is $5,500.
- Log into your CRA account and check your RSP deduction limit on your most recent Notice of Assessment from the CRA.
- Speak with a qualified financial advisor to explore all of your investment options
Deduct WFH Expenses
In December 2020, the government announced that you can now deduct your work-from-home expenses from your tax bill. With many people working at home and using their kitchens, bedrooms and living rooms as their work spaces, the Canada Revenue Agency (CRA) introduced a new temporary flat rate method to simplify claiming the deduction for home office expenses for the 2020 tax year.
“As an employee, you may be able to claim a deduction for home office expenses (work-space-in-the-home expenses, office supplies, and certain phone expenses). This deduction is claimed on your personal income tax return. Deductions reduce the amount of income you pay tax on, so they reduce your overall income tax liability”.
Visit this link to learn more claiming home office expenses
Borrow Money to Invest
Borrowing money to make investments in stocks has been growing in popularity over the last few years. With solid investing and sound financial advice, your stock portfolio should grow overtime.
From a tax perspective, interest paid on money borrowed to purchase stocks, bonds and mutual funds is tax deductible. This will increase your tax savings.
Learn more about borrowing to invest here
Claim your Medical Expenses
You can get a tax credit upon filing your tax return for medical expenses paid in the year. Qualifying medical expenses include payments made to medical practitioners like doctors, prescription drugs, specific medical devices, and premiums paid to an insurance company for medical benefits. To maximize the amount that you claim, combine the medical expenses for you, your spouse, and dependents on one family member’s tax return.
Keep all of your medical receipts, as the CRA may ask to see them in the event of an audit.
Income split for family tax savings
There are many ways to reallocate taxes with other family members. For seniors receiving pension or Registered Retirement Income Fund (RRIF) payments, pension income splitting between spouses means you can now cut your tax bill.
You can also share your Canada Pension Plan (CPP) benefits for more tax savings. For those with investment assets, and family members taxed at lower rates there are many strategies such as a prescribed rate loan that can help share the tax burden. The key is to know when income splitting is legally possible.
If you would like to discuss your tax options, please do not hesitate to get in touch via our contact form.