Six Tips on How to Save Income Tax in Canada
Filing your income tax return is a chore that most of us don’t want to think about. The more money you have, the more tax planning you can do with it. Don’t worry, though; there are many methods for Canadians to minimize their tax bill.
Are you wondering how to get more money back on taxes in Canada? Learn how to reduce income taxes every year by applying these tax tips.
Always Collect Receipts
Many Canadians often ignore or quickly say “No” when asked whether they want a receipt. But experts say keeping receipts is still the best way to assess your annual spending accurately. Keeping and storing your help lets you file your tax returns easily. and comes in handy if you ever get sued or audited.
So, hang on to documents that identify the payee, the amount, and proof of payment for the items. It would be best if you keep these receipts in an orderly fashion and a safe place. After you file your return, store them with your completed return for seven years in case you’re audited.
Maximize Your Non-capital Losses
Investors must pay capital gains tax when they sell assets at a profit. However, those who understand the rules of capital losses can often generate useful deductions. As a rule, you can claim non-capital losses for the years prior to 2005. The non-capital loss can be carried back three years or carried forward for up to 20 years.
Unlike capital losses, non-capital losses can be applied to other income. Similarly, realized capital losses from stocks could be used to reduce your tax bill. While maximizing non-capital losses can be a crucial tool, you should always keep an eye on the details.
Charitable Income Tax Credits
Charitable giving by individuals and businesses is an essential source of funding for nonprofit organizations. When you donate to a public charity, you can take a tax deduction. However, only taxpayers who have itemized their returns to create a baseline year are eligible. Therefore, you should report your charitable donations and claim your tax credits when you file your tax returns.
As with most tax benefits, changes are periodically made to those limits and other regulations. The same situation exists in many other programs, such as tax credits for research.
Strategize Your Capital Cost Allowance
Your business might purchase a depreciable property for commercial purposes. As the owner, you can deduct the expenses you pay on your tax return. And if you own any equipment that you use to do your work, you can claim a capital cost (CCA) allowance on that as well. For instance, you may want to withhold CCA on an appreciating asset to reduce the tax.
Depreciable property is organized into different classes by the Canada Revenue Agency. For incorporated businesses, CCA is entered on Schedule 8. However, you cannot claim the deduction all at once for the tax year.
Split Your Income
You can decide with your partner to split your income or pension. In order to qualify to split your pension income, you and your spouse must reside in Canada. By splitting income with a spouse, the higher income taxpayer can reduce taxable income. This is beneficial for high-income earners who would otherwise be in much higher tax brackets.
A significantly lower-income spouse will be in a lower income tax bracket. Generally, the lower-earning spouse can claim income from the higher-earning spouse. However, the tax on split income does not apply to wages received by an individual.
Find Home-Based Business Deductions
Many Canadians are or are becoming self-employed, and many choose to work out of their homes. The good news is that you are already surrounded by tax deductions. However, you must use the space exclusively for business purposes on a consistent basis. That means you must spend more than 50% of your work time there.
To begin, calculate the amount of space you’ll be using in your home. Deductible expenses include heating, electricity, water, and home insurance. If you rent your residence, you can also claim a portion of the rent you pay. Also, make sure you know how to protect your identity when working from home.
It’s easiest to calculate if you have a specific room set aside for business purposes. The office can also be a section of a room if the division is not clear. When it comes to repairs, you can’t deduct the value of your own labor.
If only reducing your tax bill was as easy as snapping your fingers. By essentially following these tax tips, you can save money by using them to your benefit. Also, consider working with an accountant familiar with your particular type of business.