From salary income to capital gains from assets, everything is taxed. Whether you pay a lump sum by April 30th or use installments, taxed percentages on your income can be discouraging without tax credits. We understand that the tax season is hard on everyone. Here are a few personal tax tips for Canada that help reduce your taxable income.
Take Advantage Of RRSP
Registered Retirement Savings Plan or RRSP, as the name suggests, is a retirement savings plan that lets you keep a percentage of your monthly income as retirement security. This income is tax deductible, i.e., it doesn’t count toward your total taxable income.
You have the option to store capital in the form of hard money, investment, savings, etc., in an RRSP account. However, this type of plan has an annual limit on how much an individual can save without having taxes levied on it.
Put Money In Variable Income Investments
Accounting experts in Ontario consider it wiser to invest in variable income assets than fixed ones. Assets like stocks that enjoy variable capital gains are given more tax incentives than fixed-income investments.
For example, investing in the mining sector help you acquire flow-through shares. Profits from flow-through shares (FTSs) are tax-deductible. The condition of the investment is that your capital is used to pay for mining expenses. Only a few recognized corporations by CRA have FTSs, so you have to be careful with your investment.
Use Home Buyer’s Credit
If you’re a first-time home buyer, you are eligible for a home buyer’s tax credit. Until 2022, the CRA awarded tax refunds of up to CAD 10,000 in this tax credit.
A house registered under you or your spouse is eligible for this tax credit. It must also be registered with a recognized land allocation system and located in Canada. Almost all types of properties ̶ from single-unit homes to mobile homes ̶ can benefit from this type of tax deductible.
Open A Small Business
Open A Small BusinessAnother useful personal tax tip for Canada is starting a small business. The CRA grants several tax credits for small business owners. For example, operating a business from home enjoys tax deductions on energy bills, mortgages, equipment, and travel. Investing your taxable income in your home-owned business can give you great tax deductibles.
With a small business, you also become applicable for small business deductibles. However, we don’t recommend using this tip if you don’t have a business plan that will surely result in significant profits. A small business with a low and slow revenue will get you stuck.
Get Tax Credit On Donations
Claiming tax credit on donations is a personal tax tip for Canada that can come in handy for people who like to give back. Under line 34900 of the CRA, you can claim a tax credit on donations, provided that these gifts are given to recognized institutions.
This tax incentive allows you to claim a partial or full amount of your donated amount as long as it is within 75% of your annual net income. Tax credit on a previous year’s donations should be claimed before making the current year’s donations.
The CRA recommends a carry-forward strategy for donations in which instead of claiming a tax return annually, you can claim a pooled amount in the next 5 to 10 years. You have the option of claiming a portion annually and pooling the remaining portions.
Use Capital Gains Reserve
Personal tax accountants in Canada recommend the option of capital gain reserves in case you are selling a property. The reserves tax incentive is only applicable when you are receiving payment in installments. The usual repayment period is no longer than five years. However, exceptions for long-term reserves are made. Over the repayment term, the reserves allow you to have reduced and variable tax percentages on your capital gains.
Credit On Canada Workers Benefit
For low-income individuals, Canada workers benefit (CWB) offers tax credits upon filing. Both individuals and families can expect returns once they file taxes. This type of tax credit also offers additional returns as part of their disability supplement program.
Hire Personal Accountants To Reduce Your Taxable Income
Despite the rigid tax laws of the country, there are plenty of incentives individuals can access if they let experts handle their taxes.
We are an accounting firm that offers personal tax services in Thornhill to individuals on payroll and/or with investments. Our solutions also include financial business and bookkeeping services in Canada for small and medium-sized businesses. To file a tax return with reduced taxable income, reach out to schedule an appointment.
