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How can I reduce my taxes in Canada?

Have you ever asked yourself, “How can I reduce my taxes in Canada?” We all want to know how to save money, especially close to April 30th, the due date for personal tax returns in Canada.

This article explains how to reduce income taxes, by applying the 10 best tax tips for individuals:

10 Best Tax Tips to Reduce Income Taxes In Canada

10 Best Tax Tips to Reduce Income Taxes In Canada

1. First time donor super credit

A major change to the 2013 tax budget was the addition of the First-Time Donor Super Credit. This new super credit is only available between the years of 2013-2017, replacing the existing non-refundable charitable donation tax credit.

A first time donor will be allowed to deduct 40% of donations $200 and under and 54% for donations over $200 without exceeding the maximum of $1000. To qualify as a first time donor, you or your spouse must not have claimed the charitable donation tax credit in any of the previous 5 tax years.

For more information visit the CRA website to see how this super credit can reduce your taxes.

2. Child care expenses

Child care expenses include, but are not limited to, fees paid to a babysitter or nanny, daycare fees, costs for an after school program, PLASP fees, etc. They are deductible by the lower income spouse, even if the higher income spouse paid for the child care costs.

The maximum amount of child care expenses that can be claimed is $7,000 for each child Born in 2003  or later and $4,000 for each child born in 1993 to 2002.

3. Accounting fees

You can minimize your taxes in Canada, by deducting fees paid to your accountant for preparing your individual income tax return. The accounting fees paid may be deducted from investment income, rental income, or business income reported on your tax return.

In all other cases, accounting fees are non-deductible.

4. Salespersons expenses

As a salesperson, you can deduct any reasonable expense that you incurred for the purpose of earning commission income.

To support your expense deductions, you must complete form T2200, Declaration of Conditions of Employment, and be required to pay for expenses related to your sales activities, as a condition of your employment.

5. Car expenses

Deducting car expenses is another answer to “How can I decrease my Canadian taxes?”

If you are required to use your personal car to carry out your employment duties, you can deduct expenses related to your car or vehicle. However, you must have a completed form T2200, Declaration of Conditions of Employment, and be required by your employment contract to use your personal automobile.

Only the business use portion of your car expenses can be deducted on your personal income tax return, which includes:

  • Insurance
  • Repairs and maintenance
  • Lease costs (to a maximum of $800 + taxes)
  • Capital cost allowance (i.e. tax depreciation, at a rate of 30% per year)
  • 407 charges
  • Parking fees

For information on whether it’s better to lease or buy a car for tax reasons, see Toronto Accountant Discusses Leasing vs. Buying Car

6. RRSP – “How can I lower my taxes in Canada?”

Contributions made to an RRSP are deductible from your income. The maximum amount that you can contribute to an RRSP for 2013 is $23,820.

The 2013 RRSP contribution limit is calculated as follows: (18% x 2012 earned income, plus any unused RRSP contribution room from prior years).

Any income earned inside an RRSP is tax free. However withdrawals from an RRSP are taxable to you.

If you’d like to know whether a TFSA or RRSP is better for you, see TFSA vs RRSP – Chartered Accountant Toronto Discusses Pros and Cons

7. TFSA

How can I reduce my taxes in Canada? Well, consider contributing to a tax free savings account (TFSA). A TFSA is an account in which any investment income earned is not subject to income tax. Unlike an RRSP, withdrawals from a TFSA are not taxable.

Stocks, bonds, mutual funds, and high interest savings accounts can all be held inside a TFSA.

In addition, the maximum annual contribution limit to a TFSA is $5,500(2013).

Note that contributions made to a TFSA are non-deductible.

For further information on TFSA’s, see the Canada Revenue Agency’s website and also read TFSA vs RRSP – Chartered Accountant Toronto Discusses Pros and Cons

8. Spousal loan

Another way to lessen your tax bill is by making a loan to your spouse at the Canada Revenue Agency’s prescribed rate of interest, which currently is 2% but expected to decrease to 1% January 1, 2014.

Your spouse could invest the loan proceeds in a business, high interest bearing investments, stocks, real estate, etc., and any income generated from those investments would be included in your spouse’s taxable income.

The optimal amount of a spousal loan is equal to the amount that would equalize you and your spouse’s taxable incomes, after taking into account the investment income expected to be generated on the investments made from the loan proceeds.

Making a spousal loan to a spouse who is in a lower income tax bracket is an excellent income splitting strategy, and is a perfect answer to your question of “How can I take advantage of tax credits in Canada?”

9. Children’s Fitness Amount

The children’s fitness tax credit, a.k.a. children’s fitness amount, is a tax credit available to Canadian taxpayers who enrol their children in a physical activity program.

The tax credit is calculated as 15% of the amount paid for a physical activity program. The maximum credit that can be claimed is $500 if your child is under 16.

The receipt for your child’s physical activity program should say whether the program qualifies for the children’s fitness tax credit.

10. Public transit amount

As a Canadian taxpayer, you can claim a tax credit, known as the public transit tax credit, for amounts spent on monthly or yearly public transit passes. Eligible passes must be for one of the following:

  • Busses
  • Streetcars
  • Subways
  • Trains
  • Ferries

11. Frequently Asked Questions on “How can I reduce my taxes in Canada?”

A) Question: Can I claim parking fees on my tax return?

Yes, you can claim parking fees on your tax return, under certain circumstances, including:

  • You are self employed and earned business income
  • You are an employee and paid for parking to visit a client, supplier, or in connection with your employment duties. Amounts paid for parking at your place of work are non deductible.
  • You earned rental income during the year and were required to pay for parking in connection with your real estate activities

B) Question: Can I deduct interest paid on a loan to purchase stocks or other income producing investments?

Yes, you can deduct interest paid on a loan to purchase stocks or other income producing investments. The interest paid should be deducted on Schedule 4 of your personal tax return.

For more information on tax efficient investing, please see How Do I Save Tax in Canada by Accountants in Oakville

C) Question: Can RRSP contributions reduce my income tax bracket?

Yes, RRSP contributions can reduce your income tax bracket. The amount of RRSP contributions that you must make in order to reduce your income tax bracket is equal to: Your taxable income before RRSP’s minus the threshold for the next lowest tax bracket.

To find out what the threshold is for each income tax bracket, see What are the income tax rates in Canada for 2013?

D) Question: Which employment expenses can I deduct to reduce my employment income for tax purposes?

There are many employment expenses that you can deduct, as an employee, on your personal income tax return, including:

  • Travel expenses (hotels, air fare and meals)
  • Car expenses
  • Office rent
  • Union and professional dues
  • Home office expenses
  • Cost of supplies (includes cell phone air time and long distance charges)
  • Salary paid to an assistant

For more information on deducting employment expenses, see How Do I Save Tax in Canada by Accountants in Oakville?

E) Question: I’m self-employed. How do I reduce my income taxes in Canada?

If you are self employed in Canada, there are many ways to reduce your income taxes in Canada, especially through tax write-off’s. For more information on reducing tax for self employed individuals, see How to save taxes for self employed in Canada?

F) Question: Are there ways to reduce corporate taxes in Canada?

Yes, there are many ways to reduce corporate taxes in Canada. For the best ways to reduce corporate taxes, watch my video How to save corporate taxes in Canada. Also, read my article 10 Best Tax Tips for Business Owners

About the Author – Allan Madan

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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About the author

is a Chartered Accountant, CPA and Tax Expert and enjoys working with business owners, individuals and entrepreneurs.

32 Responses to How can I reduce my taxes in Canada?

  1. Gordon Unger says:

    Can you further explain how the spousal loan works? I am the higher income earner but howe does providing a loan to my spouse reduce my taxes?

    • superAmin says:

      A spousal loan can be summarized in 4 easy steps:

      1. Lend money to your lower-income spouse
      2. Your spouse uses the borrowed money to make an investment that is profitable
      3. The profits from the investment are taxed in your spouse’s hands, not yours
      4. Your spouse pays interest to you on the borrowed money at a rate of 1% per year

      In summary, a spousal loan allows you to splint income from investments with your spouse, with the goal of reducing your family’s income tax

  2. Alex says:

    If I would like to contribute $5000 to my TFSA, do I need to wait for certain period before I invest to the stock or other similar investment. Also, how to take those money to invest? Do I need to open another investment accounting?

    • superAmin says:

      There’s no minimum time period that you have to wait to invest. The TFSA that you opened with your financial institution should allow for trading of stocks, bonds, etc., if that is your intention.

  3. Len says:

    Hi
    I am self employed. Is there a way to get EI in case I run out of clients ?

    Thanks

    • superAmin says:

      It is very important that to point out that self-employed contractors are NOT eligible for general EI benefits. If you are unemployed, you will not receive EI.

      If you were fully self-employed (had no insurable earnings coming in from a job) during the year, there is a “Special EI Contribution” Program for which you are eligible::

      -Firstly, you must have registered for EI and waited at least 12 months before making a claim
      -Secondly, in the prior year (2011), your self-employed earnings should have been at least $6,222 (minimum)
      -Lastly, claims can ONLY be made on sickness (must provide proof and medical certificate); maternity
      (must provide proof/certificate); gravely ill family member (must provide medical proof/certificate)

      You will be always required to provide proof to make claims.

    • superAmin says:

      It is very important that to point out that self-employed contractors are NOT eligible for general EI benefits. If you are unemployed, you will not receive EI.

      If you were fully self-employed (had no insurable earnings coming in from a job) during the year, there is a “Special EI Contribution” Program for which you are eligible::

      -Firstly, you must have registered for EI and waited at least 12 months before making a claim
      -Secondly, in the prior year (2011), your self-employed earnings should have been at least $6,222 (minimum)
      -Lastly, claims can ONLY be made on sickness (must provide proof and medical certificate); maternity
      (must provide proof/certificate); gravely ill family member (must provide medical proof/certificate)

      You will be always required to provide proof to make claims.

  4. Chad says:

    Canadian Tax Accounting Blog!

  5. Mark says:

    I was just wondering with respect to child expenses can we deduct any amount for physical activity. We have the boys in hockey right now.

    Thanks

  6. Mary says:

    Hi I was just wondering if I wanted to transfer my RRSPs to a TFSA could I do that and are there any tax consequences as a result?

    • superAmin says:

      Unfortunately Mary it makes little sense to do this. For two reasons one You can only contribute $5500 to your TFSA each year. The second reason is even if you transfer to a TFSA the withdrawal is not tax free. You will still be required to pay taxes on the withdrawal. You are best to keep the money in the RRSP or just withdraw normally and pay the according taxes.

  7. Bo says:

    I am moving residences this coming year. I am moving from Toronto to Calgary. I am driving myself and getting a truck to take my belongings. I was just wondering if there is any deduction the government gives us if we are moving long distances?

  8. J.J. says:

    Hi Allan,

    Is it possible to deduct healthcare expenses not covered by the Ontario Health Insurance Plan?

  9. Lyle says:

    What if I made a loan to who is now an ex-wife, but was legally my wife when I gave her the loan. Would the same rate of interest still apply?

    • superAmin says:

      Hi Lyle,

      Since she was legally your wife at the time of the loan, the same rate would still apply to her.

      Best Regards,

      Allan Madan and Team

  10. Mahmoud says:

    What is the total TFSA contribution room?

    • superAmin says:

      Hi Mahmoud,

      IF you were at least 18 years of age in 2009 when the TFSA was first establish then your total contribution room for 2014 would be $31,000.

      Best regards,

      Allan Madan and Team

  11. Timothy says:

    Can I make TFSA contributions as a non-resident?

    • superAmin says:

      Hi Timothy,

      Any contributions that you make as a non-resident will be subject to a 1% tax for each month the contribution remains in the account. So it would be pointless to contribute even though
      you technically could.

      Best Regards,

      Allan Madan and Team

  12. Steve says:

    Great page. Thank you for the advice.

    As an inside sales person who makes a salary and untaxed commissions, am I best served to match the amount of my commissions into an rsp to avoid taxes? Any downside to this?

    Thanks again!

    • superAmin says:

      Hi Steve,

      Yes, you should certainly consider making matching RRSP contributions up to your RRSP limit for the year. This will provide you with some tax relief because RRSP contributions are tax deductible.

      You should also ask your employer to complete form T2200, Declaration of Conditions of Employment. By completing this form, you may be able to claim important tax deductions such as:

      - home office
      - meals and entertainment
      - telephone and internet
      - car expenses
      - purchases you made for the purpose of earning commissions

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  13. Rosie says:

    I am placed in a very high tax bracket because I receive annuity payments monthly. Currently I receive over $2,900 per month and pay taxes in quarterly installments. I do work full-time as well, and have never lived on disability and/or welfare (even though I am physically disabled due to a doctor’s extreme poor judgement before I was born.) The annuity increases my taxes astronomically and I am struggling to pay taxes because of this.

    For example my quarterly installments in 2013 were $7119. Most of my monthly annuity amounts given to me go directly to pay for taxes. Other than investing in RRSP, and donations is there another way to reduce my taxes? (To make donations to help with the following year taxes I would be paying less towards the current year’s taxes, which doesn’t seem to make sense to me..)

    I cannot afford a lawyer and accountant to look into this. I live on very little income just to pay my taxes so there’s no much left with lawyer or accountant fees.

    Thank you,
    Rosie

    • superAmin says:

      Hi Rosie,

      You can consider the following tax savings tips to reduce your taxes:

      1. Claim the disability tax credit if you are eligible
      2. Claim medical expenses paid, including medical expenses related to your disability
      3. If you are single, claim the ‘equivalent to spouse’ tax credit. If married, claim the spousal tax credit
      4. Explore other tax credits you may qualify for: 1) First Time Donor’s Super Tax Credit, 2) Tax Credit for Dependent Children, 3) Public Transit Passes Credit
      5. If you are an avid investor, you can purchase ‘flow though shares’, which have very attractive tax attributes (speak to a financial adviser first)

      Thank You,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  14. Junaid says:

    Hello Just wondering, whatever my employer contributed to my RSP, could that be used for my tax benefits? Cos I got my RSP tax slip and it doesn’t shows my employer contribution.. Only mine.. Thanks

    • superAmin says:

      Hi Junaid,

      RRSP contributions made by your employer (at their own expense) are treated as a taxable benefit to you. The taxable benefit is reported on box 14 and box 40 of your T4 slip. If you have sufficient RRSP contribution room available, you can make a deduction for the amount your employer contributed to your RRSP.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  15. Kay says:

    Dear Allan,
    Currently I am employed. I would like to borrow some money around $20,000 from my brother who is in US and employed. What would be the safe mode to transfer this amount in order document for taxation purpose. This money is for my house hold support only. Is it exempted from the tax?

    • superAmin says:

      Hi Kay,

      Loans received by residents of Canada are not subject to Canadian income taxes. A loan agreement should be prepared specifying the terms of the loan, including the interest rate applicable, and repayment period. Ordinarily, interest paid to a non resident of Canada would be subject to Canadian withholding taxes. However, pursuant to the Canada US Tax Treaty, the withholding tax rate has been reduced to 0% on interest payments.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  16. laura says:

    Instead of health/dental insurance, I have a Personal Spending Account at work, where I can get reimbursed for child care expenses. The reimbursement that I receive is taxable. Can I still claim my child care expenses on my income tax?

    • superAmin says:

      Hi Laura,

      So long as the monies reimbursed to you for child care are included in your T4 slip as a taxable benefit, you can deduct the amount you paid to a child care provider on your personal tax return. You must ensure that the child care expenses paid are qualifying expenses for the purposes of the child care tax deduction.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

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