Understanding Canadian tax shelters and their benefits.

What do you know about tax shelters in Canada? It may be associated with tax evasion, illegal schemes, or other bad practices – however, not all tax shelters are bad news! Learn more through this week’s Tax Tip Weekly!

You have probably heard the term tax shelter being thrown around – most likely in connection with tax evasion, illegal schemes, or other bad practices. However, not all tax shelters are illegal; in fact some legitimate tax shelters can save you taxes and money.

So, what exactly is a tax shelter?

A tax shelter is any method that is used to reduce taxable income. This can either be in the form of a property or even a gift to a charity. However, you must be aware of gifting tax shelter arrangements.

In these schemes, the individual buys a property that is normally below market value and then donates it to a charity. In return, the individual will receive a donation receipt for a much higher amount or value than the actual cash contribution made.  The CRA has made it very clear that they are going to audit every single tax shelter arrangement, and slim minorities are found to be in compliance. Therefore, not only will the donation tax credit be disallowed, but you also risk substantial fines and penalties. Learn more about tax scams that may affect you and your business.

However, there are legitimate tax shelters endorsed by the Canada Revenue Agency that target specific sectors of the economy, stimulate growth and the economy as a whole.

Some of these tax-assisted investments include RRSPs, RESPs, and TFSAs. If you have the funds available, consider investing in flow-through shares in oil and gas companies because you can receive substantial deductions and tax credits based on the amount invested. As always, consult your financial advisor first before making a speculative investment. See how flow-through shares can be advantageous to you.

So here is the tip!

RRSPs, TFSAs, and flow-through shares are among the most legitimate tax shelter arrangements. If you plan on making an investment in any other tax shelter, make sure you consult a tax advisor to ensure that their arrangement complies with the income tax act.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

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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