Can someone genuinely say that filing and paying taxes is fun? We doubt it.
However, one thing can make the whole ordeal a little more bearable, and that’s tax breaks.
What’s better than taking advantage of deductions and significantly lowering your tax bills? We’d say – not much. Tax planning can take a great load off your shoulders, and it only comes with benefits!
If you want to learn how to pay less taxes in Canada, stick around to find out!
Tips to Reduce Tax in Canada
Thankfully, there are numerous tax-saving options in Canada that can significantly lower your debt without leaving a hole in your pocket after tax season. Below, we’ve compiled a list of the ten most valuable tips on how to save on taxes.
1. Keep complete records
You can never be too careful with record-keeping. Therefore, to avoid losing any receipts, you should organize them diligently, either physically or electronically. Doing this can eliminate the possibility of missing out on any tax deductions. Likewise, your records are proof of any eligible tax credits, so you should always hold on to them.
2. File taxes before the deadline
One of the most efficient tax strategies in Canada for paying fewer taxes is filing them before the deadline. With this, you’ll never be charged any needless penalties due to missing the date. As you probably already know, the tax-filing deadline for most individuals is April 30, but you can file your taxes as early as February 21.
3. Separate personal expenses
If you want to learn how to reduce taxes in Canada, you should consider income splitting, i.e. having separate personal and business accounts. Moreover, your business expenses go on your business card, which, by extension, can help you qualify for deductions. Whereas paying business expenses with personal finances might get you in some hot water with the CRA.
4. Invest in RRSPs and TFSAs
Investing in Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) is one of the most efficient tax planning strategies in Canada. RRSPs enable you to shelter your tax savings, while TFSAs allow you to withdraw money without any penalties. However, before investing, talk with a qualified financial advisor that can guide you through the process.
5. Hire an expert
Luckily, you don’t need to do all this by yourself! On the contrary, an accountant could potentially file your taxes (error-free) and may even take advantage of deductions, tax credits, and tax loopholes found in Canada’s law. What’s more, such experts can answer any long-standing questions about filing, which will undoubtedly help you down the line.
6. Deduct some home office expenses
If you run a home-based business with an office, you’re entitled to claim deductions. These can be things like internet and utilities, which are often overlooked. However, you must calculate the percentage of your home used for business to claim dividends. Furthermore, you can determine how much the CRA owes you for rent, utilities, and other expenses.
Read more: What is Tax Loss Harvesting
7. Claim child care costs
Children are usually sent to daycare centres if their parents work full-time. However, daycare prices can be steep and unaffordable for many. That’s why it’s essential to know that you can claim child care expenses on your tax returns, such as nurseries and nannies. Moreover, these are great opportunities to discover how to reduce your income tax in Canada.
8. Claim moving costs
Moving costs can be deducted from your income tax if you’ve relocated at least 40km because of your business. Again, you must show relevant receipts stating transportation fees, realtor commissions, and miscellaneous utilities to claim these deductions. Additionally, temporary living expenses for your entire family (up to 15 days) can also be deducted.
9. Claim medical expenses
Similarly, if your insurance doesn’t cover a medical expense, you can bet it’s tax-deductible. Claiming medical expenses is a useful tax-saving option in Canada, as you can deduct the entire amount on your tax returns. What’s more, this includes expenses like insulin, eyeglasses, hearing aids, vitamins, and others (although you need a prescription to claim these).
10. Claim the Canada Workers Benefits
Canada has some of the best workers’ benefits available. Thus, low-income working families can claim the Canada Workers Benefits when filing their tax returns. Additionally, if you’re eligible for the CWB, you can get up to half of the money in advance payments. The CWB is an incredibly convenient option to increase your tax savings.
We’ve reached the end of our discussion. Remember that it doesn’t take much to learn how to pay less taxes in Canada. All you need to do is keep complete records, file your taxes on time, and claim all the deductions available to you.
Tax season is nearing, so get filing!
Related article: What is the Effective Tax Rate in Canada?
The lowest tax bracket is set at $13,229. Therefore, you won’t pay any income tax on the first $13,229 of income you’ve earned.
The deadline to pay your previous year’s taxes is April 30th. The CRA will still accept your submission if you miss the date, but it will come with a penalty.