How to Save Taxes in Canada

Allan Madan, CA
 Oct 25, 2010
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Taxes are burdensome. How can I save taxes in Canada? I’m sure you have all asked yourself this question before, especially when it’s time to file your Canadian income tax return.

As an experienced professional (tax accountant Mississauga,Toronto and surrounding areas), I can reduce the amount of income tax that you pay, by utilizing tax planning strategies. A sample of these tax planning strategies are discussed below:

Writing off Employment Expenses – How to Save Taxes in Canada – Tax Accountant Mississauga

“The first way to save tax in Canada is to write-off employment expenses”, says Allan Madan, Tax Accountant Mississauga

Not all employment expenses are tax deductible, but some are. Tax deductible expenses employees include:

  •   Car expenses, where your car is required for work
  •   Home office expenses for your work space at home
  •   Cell phone
  •   Tools and supplies
  •   Salary paid to an assistant.

You must complete form T2200, Declarations of Conditions of Employment, which must be signed by your employer. This is a prerequisite for you to deduct employment expenses on your Canadian income tax return.

If you are not deducting any employment expenses on your personal tax return, then it’s time to talk to your tax accountant in Mississauga.

Contribute to RRSP before paying mortgage – How to Save Taxes in Canada – Tax Accountant Mississauga

“The second way to save taxes in Canada is to contribute to your RRSP before paying down your mortgage”, says Allan Madan (Tax Accountant Mississauga).

The reason being is that contributions made to a RRSP are tax deductible and any investment income or gains earned inside a RRSP are tax-free.

On the other hand, mortgage payments are not tax deductible. In addition, while additional mortgage payments will save future interest, interest rates are at an all time low, which reduce the amount of interest savings.

Therefore, if you are looking to make additional payments, then you’ll be far better off from an after tax cash perspective by contributing to your RRSP instead of paying down your mortgage faster.

As a Tax Consultant, I recommend that you take a conservative approach. Any tax savings that you realize by making additional contributions to your RRSP should be used to pay down your mortgage. By doing so, you are saving for your retirement at a faster pace and at the same time you are paying down your mortgage faster.

There are many tax calculators available on the internet which will illustrate why you would be better off you by contributing to your RRSP, instead of paying down your mortgage faster.

Pay Salaries to Family Members – How to Save Taxes in Canada – Tax Accountant Mississauga

“The third way to save tax in Canada is to pay salaries to family members,” says Allan Madan, Tax Accountant Mississauga.

If you are a business owner, then salaries paid to family members are tax deductible. The amount of salaries paid must be reasonable, otherwise the CRA will disallow the deduction.

If your family member is in a low tax bracket, he or she will pay very little tax on the salary received. For example, if your children do not have any income, then they could receive up to $10,320 in salary each without paying any tax at all, and that salary payment will still be tax deductible to your business.

Use of a Family Trust – How to Save Tax in Canada – Tax Accountant Mississauga

“The fourth way to save tax in Canada is through the use of a family trust,” says Allan Madan, (Tax Accountant Mississauga).

A family trust is used to hold your:

  •   Private company’s shares
  •   Real estate investments
  •   Portfolio investments such as stocks and bonds.

Any income realized from these investments, shareholdings, stocks, real estate, etc., would pass through the family trust and would be attributed to the beneficiaries’ income. Usually the beneficiaries of a family trust are your children, spouse, and other family members. Because they are in a lower tax bracket than you, you will be saving taxes overall.

In addition, any future growth in the value of the investments will accrue to your family members through a family trust, as opposed to being attributed to you. This is very advantageous because when it comes to that ugly word ‘death’, the growth in the value of the investments will not be taxed upon the time of your death, but will be taxed upon the death of your family members. That is a great way to defer taxes.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 7

  1. […] complete information and details about how experienced Mississauga Accountants can help you with your business taxes today! When you work with Accountants in Mississauga, you […]

  2. Re: Management companies – an effective way to save taxes

    I am planning to incorporate to invest in rental properties. Seems that “Management companies” concept should be one of the ways that should be looked into for the setup.

    One question is: After the management company pays the 16.5% tax, whether the dividend distributed to the shareholders of the management company is still subject to any kind of taxes on hands of the shareholders?

    Thanks and regards,
    Alan

    1. Hi Alan,

      Thank you for your inquiry. The first $40,000 (round-figure) of dividends received by an individual are tax-free. After that figure, dividends are taxed.

      Hope this helps answer your inquiry.

      Thank you !

      The Team at Madan CA

  3. HiI came to Canada in 1998. I have money in India in State Bank of India as fixed deposit. On maturity, I want to bring this money to Canada.I want to know if there are any Canadian tax liability .RegardsGaurang

    1. Hi Gaurang,

      Hi Gaurang,As a resident of Canada, you must report your interest income from State Bank of India every year when you file your Canadian Tax Return.As such, when your deposit matures, there will be no additional tax liability when you transfer the money from India to Canada. However, foreign exchange gain/loss may occur.– Allan

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