Are you paying too much in taxes and would love to know how to pay less? As tax experts and tax accountants in Oakville and in the Greater Toronto Area (GTA), we have helped many individuals and businesses save on taxes by using powerful tax savings strategies, some of which are shown below. So start to save taxes now with powerful tax tips.
“Ask your employer for a gift or award instead of a pay raise,” says Oakville’s tax expert, Allan Madan
Who would ever want to give up a raise for a gift from your employer?
I certainly would, because I know that I can receive up to two non-cash gifts, tax-free, from my employer each year, as long as the total value of the gifts are not in excess of $500.
For example, assume that you’re in a 40% tax-bracket. If you receive a non cash gift for $500 (say a small television) from your employer, then you would pay no taxes whatsoever on that gift. However, if you receive a pay raise for $500, then you would only receive $300 after-tax.
As such, consider asking your employer for a non cash gift, instead of a pay raise this year, because you’ll be better off after tax.
Please consult with a knowledgeable accountant before undertaking this tax savings strategy.
If you are an employee and would like to learn more about how to save on taxes, see my article, Top Tax Savings Strategies for a complete list of tax free employment benefits.
Instead of a sole proprietorship, consider a family partnership
If you’re self employed and operate as a sole proprietor, then you should consider becoming partners with your family members.
By adding your family members as partners to your business, you will be able to split the profits of your business with your family members, because as partners, they are entitled to a share of the profits.
For example, you could make your wife, your adult child and yourself partners, each having a 33% partnership interest in the business, which means the profits will be split three ways.
When compared to a sole- proprietorship, a partnership will save you a lot in taxes, because the business’ income will be subdivided with your family members, instead of being included only in your taxable income.
Tax rules concerning partnerships are complex. I recommend consulting tax accountants in Oakville and GTA for sound tax planning for yourself and your family.
Maximize tax deductions on your car
As an employee or self-employed person, you can deduct costs related to the business use of your car, including:
- Fuel and oil
- Maintenance and repairs
- Vehicle registration fees
- Toll charges
- Lease costs or if you own your vehicle, depreciation
“Deducing car expenses on your tax return can often result in a large tax refund,” says Allan Madan, Chartered Accountant.
Whether you’re an employee or a self employed person, you can only deduct the portion of your car expenses related to the employment/business use of your car.
The formula to determine the deductible percentage is:
(kilometres driven for employment & business purposes during the year, divided by total kilometres driven during the year) x 100%.
Employees (not self-employed person) must satisfy two additional conditions to deduct car expenses for tax purposes:
- You must be required to use your car to carry-out your employment duties, and this must be a condition in your employment agreement
- Your employer must complete form T2200, Declaration of Conditions of Employment
Claim tax depreciation on your rental property
When you purchase a rental property, you are entitled to deduct depreciation for tax purposes to account for the wear-and-tear of your property. The rate of depreciation is 4% for residential properties and 6% for commercial properties.
Note that only the building portion of the property, and not the land, qualifies for tax depreciation.
For example, assume that you purchased a rental property for $200,000, and 60% of value of the property was attributable to the land and 40% of the value of the property was attributable to the building. In this case, you would be able to deduct $4,800 of tax depreciation (aka capital cost allowance) from your rental income.
Please consult with tax experts first to determine whether claiming tax depreciation on your rental property is appropriate for you.
For information on how to prepare tax returns for rental properties in Canada, please visit my article on completing the form T776, Statement of Real Estate Rentals
Make a contribution in kind to your RRSP instead of cash
As you may already know, contributions made to a RRSP are tax deductible and any income earned inside a RRSP is not taxed. RRSP is a great investment savings tool, given their tax benefits.
But what happens if you’re low in cash, and can’t afford to make a RRSP contribution this year? In this case, consider contributing assets that you own to you RRSP instead of cash. Assets that the Canada Revenue Agency will allow you to contribute to your RRSP include:
- Mutual funds
- Corporate bonds
- Shares of public companies
- Mortgages secured by real estate properties
- Life insurance policies
- Gold and silver coins and bars and equivalent certificates
Before undertaking this tax savings strategy, please consult with a financial advisor in your area.
For information on setting up an RRSP, contribution to an RRSP, or where to find your RRSP deduction limit, you can visit the CRA’s page on RRSP
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.