How To Pay Fewer Taxes In Canada

People are always looking for ways to save tax in Canada. Well, we have 7 of the best ways that you can legally save money on taxes this year.

Just like knowing how to check your credit score and what an interest rate means for a loan, Canadians need to have these tax-saving tips in their financial toolbox.

Just remember that paying fewer taxes legally does not mean avoiding paying any taxes. That will get you into tax debt and the Canadian government has ways of collecting your outstanding tax debt including garnishing your wages.

Here are some of the best ways to save more money in taxes in Canada this year.

Key Points On How To Pay Fewer Taxes In Canada

• Max out your tax-sheltered accounts such as the TFSA, RRSP, and FHSA. 
• Find all the tax credits and deductions you’re eligible for. If you don’t know where to start, hire a tax expert to help you. 
• Claiming capital losses, income splitting, and donating to charities can also help you pay fewer taxes in Canada. 

Invest In Tax Sheltered Accounts

Tax-sheltered accounts are one of the most popular tax savings tools available to Canadians. Depending on how much you invest, you can save thousands of dollars in taxes each year. 

How To Pay Less Tax In Canada Using An RRSP

Investing in a Registered Retirement Savings Plan (RRSP) is a tax-sheltered account that can reduce your taxable income. The money you invest in an RRSP will lower your taxable income and thus reduce your overall tax obligation. 

However, investing in an RRSP doesn’t mean that you’ll go forever without paying taxes on your savings. The money in your RRSP is tax-deferred. Meaning, you will eventually have to pay taxes when you withdraw funds from your account. 

However, you generally only withdraw from your RRSP during retirement when your income has substantially dropped. As such, you’ll pay lower taxes on the amount you withdraw. 

Things You Should Know When Investing In An RRSP

How To Pay Less Tax In Canada Using A TFSA

While the funds you deposit into a Tax-Free Savings Account (TFSA) don’t reduce your taxable income, it does allow you to earn tax-free interest, dividends, or capital gains from eligible investments. That means any profits you earn in your TFSA account are tax-sheltered and not subject to tax.

Moreover, unlike an RRSP, you’re allowed to withdraw from your TFSA whenever you want and the funds will always be tax-free, not just tax-deferred.

Things You Should Know When Investing In A TFSA

How To Pay Fewer Taxes Using A FHSA

If you’re planning on buying a house or condo, consider investing in a First Home Savings Account (FHSA). Like an RRSP, the funds you invest will reduce your taxable income and like a TFSA, the interest you earn on the funds is not taxable. 

This account can provide significant tax savings when you max out the account, and allow for tax-free withdrawals when you make a qualifying home purchase

Things You Should Know When Investing In A FHSA

Income Splitting

Income splitting is a common tax savings technique used by seniors on a pension. Those with a higher income can elect to share 50% of their pension with their spouse or partner. This will lower their taxable income. 

Can You Split Your Income Before Retirement

You can split your income through spousal RRSPs. Here, the higher-income earner can contribute to their spouse’s RRSP,  up to their available contribution limit. This will help you avoid any contribution penalties and lead to fewer taxes. 

Use Your Capital Losses

Writing off capital losses isn’t just for business owners. You can also deduct the losses that you’ve had on your assets, such as a home or other investment. By doing so, you can offset capital gains tax on sales of well-performing investments in any of the three preceding years or any future year.

How To Pay Less Tax In Canada By Claiming Tax Credits And Deductions

Depending on the province you live in, there is a wide range of tax credits and deductions you may be eligible for. Consider whether any of the following can help you pay less taxes this year. 

• Disability Tax Credit
• First-Time Home Buyers’ Tax Credit (HBTC)
• Multigenerational Home Renovation Tax Credit

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Saving Money On Taxes By Claiming Personal Expenses

To save even more money on your income taxes, there are several personal costs that you can claim, including:

Home Office Expenses

If you have run a home business, you have to calculate a percentage of your workspace expenses and then report those costs to the CRA so that they can be claimed on your taxes. Here are some home business expenses that Canadians commonly deduct: 

• Computers, Laptops & Other Equipment
• Internet & Phone Bills
• Utility Costs 
• Mortgage Interest or Rent Payments
• Office Furniture & Supplies
• Property Taxes & Home Insurance

Moving Costs

Moving is rarely easy or cheap but thankfully you may be able to claim some of your expenses on your taxes if you had to travel at least 40 kilometres to reach a new home-based workplace during the previous year. Deductible moving expenses include:

• Transportation
• Storage Fees
• Realtor Commissions
• Utilities (Connection or Disconnection)
• Travel Costs (to View or Buy Properties)

Medical Expenses

If you, your spouse or your common-law partner have healthcare costs that qualify for non-refundable tax credits during the current year, they can be claimed on your taxes. The same goes for children or other dependents. For 2023, medical costs that are more than $2,635 or 3% of your line 23600, whichever is less, are eligible. Examples: 

• Prescriptions 
• Dental Procedures
• Nursing Home Costs
• Medical Tools, Clothing & Equipment
• Medical Treatments (physiotherapy, cosmetic surgery, etc.) 

How To Pay Fewer Taxes In Canada By Donating To A Charity

Did you know that registered charities in Canada give out tax receipts for donations? Those receipts help reduce your tax bill.

You don’t necessarily have to donate money. You can donate items or even stocks. In certain circumstances, you get a receipt for the fair market value of the items.

The important thing to remember is to establish the fair market value of the goods. For example, if you donate food to a charity luncheon, if the charity can prove the fair market value of the food, they can issue a receipt for it.

So, if you are donating food to a charity, keep your grocery bill.

Can You Get A Tax Receipt If You Donate Your Time?

Generally speaking, no. However, the Government of Canada provides some specific examples on their website to help determine if a donation requires a receipt. 

The Right To Reimbursement

A Right to Reimbursement is another way a charity can issue a receipt for a volunteer’s out-of-pocket expenses. If the volunteer doesn’t want reimbursement but instead wants a tax receipt, then the volunteer needs to put that in writing.

This way, the service becomes a non-cash gift. You can get a receipt for the gas used when you use your car for the charity. Again, this needs to be agreed on beforehand with the charity.

Pay Less Tax-Related Interest by Avoiding Late Penalties

There’s no denying the importance of paying your income taxes on time. If you don’t, you could receive a stiff late penalty from the CRA, as well as more interest added to your final tax debt.

Note: if any of the due dates fall on a weekend or holiday, CRA will push the date to the next business day.

Can A Tax Expert Help You Pay Less Tax In Canada?

Whether you have a simple or complex financial situation, filing your taxes can be complicated. It may be easier to hire an accountant or tax expert to manage your taxes and help you find tax deductions and credits you may be eligible for. 

While some professional tax services can be pricey, there are many free tax clinics in Canada. Similarly,  many tax software companies offer expert help at low costs.  

Additional Reading

What Is The Maximum Tax Refund You Can Get In Canada?

Family Tax Benefits For Parents

GST/HST Payment Dates In Canada

How To Pay Fewer Taxes In Canada As A Business

• Another way to pay less tax in Canada is by transferring a portion of your income to one of your primary family members. Many self-employed people will do this by hiring their spouse, common-law partner, or child as an employee of their home business. Typically, this would need to be someone who’s already earning a lower income than yourself.
• If you run a business, you may be able to write off certain types of capital losses on your taxes. Common examples of losses that are tax-deductible include unpaid customer invoices, thefts and investments that have lost value. Eligible capital losses can amend past bills or offset your yearly capital gains. 

Bottom Line On How To Pay Less Tax In Canada

Filing your taxes can be expensive and annoying but there are ways to make it better. Plus, the credits and deductions you’re eligible for can vary depending on your income, assets, expenses, and employment. Don’t forget to save your receipts, prepare all your paperwork, consult the CRA website and do all you can to pay fewer taxes this year.        

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