How to Save Personal Taxes in Canada

Allan Madan, CA
 Nov 9, 2010
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Are you tired of paying too much tax in Canada? If yes, then you must read this article “How to save personal taxes in Canada?”

In this article, I share the some of the best proven tax savings strategies, which I have compiled over the years as a Personal Taxes Oakville Accountant.

Tax-Efficient Investments – Personal Taxes Oakville – How to Save Personal Taxes in Canada

How to save Personal taxes in Canada?

The first way to save personal taxes in Canada is through the use of tax-efficient investments.

What are Tax-Efficient Investments?

As investors today, we have a lot of choices on the types of investments that we can purchase. There are mutual funds, segregated funds, bonds, flow through shares, RRSP’s, stocks, TFSA’s and the list goes on. As an investor, you should purchase investments that result in a low rate of tax (i.e. tax efficient investments) so that you can increase your after-tax rate of return.

Best to Worst – Tax Efficient Investments

  •   The most tax-efficient investments are those investments that offer return of capital. Return of capital can be taken back completely tax-free. What could be better than that?
  •   The second most attractive investments from a tax perspective are those investments that pay dividends. Eligible dividends are taxed at a rate of 25% (assuming that you are in the highest income tax bracket).
  •   Interest bearing investments are the worst from a tax perspective. If you are in the highest tax bracket, you’ll pay 46.4% on the interest earned on your investment.

As you can see, the types of investments that you purchase can have a great impact on the size of your retirement portfolio. Therefore, it’s important that you hire an accountant specializing in Personal taxes in Oakville, to review your investment portfolio to make sure it’s working tax efficiently for you.

Deduct Employment Expenses – Personal Taxes Oakville – How to Save Personal Taxes in Canada

The second way to save personal taxes in Canada is to deduct employment related expenses on your personal tax return.

Deductible employment expenses include:

  •   Tools and supplies
  •   Travel
  •   Car expenses
  •   Cell phone airtime
  •   Home office
  •   Salary paid to an assistant

If you did not deduct any employment expenses on your personal tax return in the past, then it’s important to consult with an Accountant specializing in personal taxes in Oakville, to find out what you’ve missed.

Contribute to RRSP – Personal Taxes Oakville – How to Save Personal Taxes in Canada

“The third way to save personal taxes in Canada is to contribute to a RRSP,” says Allan Madan, Oakville accountant specializing in personal taxes.

Contributing to a RRSP has two major advantages:

  •   Contributions to a RRSP are tax deductible
  •   Any income or gains earned inside a RRSP are completely tax free

You should review your most recent notice of assessment to determine what your RRSP limit is for the current year. Your RRSP Limit represents the maximum amount that you can contribute to your RRSP’s in the current year.

Invest in TFSA’s – Personal Taxes Oakville – How to Save Personal Taxes in Canada

The fourth way to save personal taxes in Canada is to invest in a TFSA (Tax Free Saving Account).

The maximum amount that you can contribute to a TFSA in a year is $5,000. The two major advantages of TFSA’s are:

  •   Any income or gains earned inside a TFSA are completely tax free
  •   Any withdrawals from a TFSA are also tax free

I recommend using a TFSA for short term savings. Let’s say that you put aside $5,000 in a TFSA to save for a family vacation, and that $5,000 increased in value to $8,000 over 1 year. In this case, you could withdraw $8,000 from your TFSA without paying any tax whatsoever on the withdrawals and you will have a wonderful family vacation.

Before investing in a TFSA, you should speak with a financial advisor and an accountant specializing in personal taxes in Oakville.

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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