Five Tax-Savings Tips for Canadians
Making more money is always a good thing, right? The tax collector thinks so too! Here are five tax-savings tips you should talk to your advisor about today that could reduce your tax obligations this year.
Maximize your RRSP
Registered Retirement Savings Plan (RRSP) contributions are tax-deductible. So, the more you contribute to your RRSP (up to the maximum annual contribution limit), the more you can deduct from your taxable income and lower that tax bill.
RRSPs allow you to defer the tax you need to pay until you withdraw from the account. Withdrawals will generally start after retirement when you are in a lower tax bracket.
You can find your RRSP limit for the current year on your previous year’s Notice of Assessment from CRA.
Make the most of TFSAs
While your contributions to a Tax-Free Savings Account (TFSA) will be post-tax income, all interest, dividends, and capital gains earned in the account, as well as withdrawals from the account, are tax-free. So, the more money you contribute to this account, the more you can withdraw after retirement without any tax implications.
The 2022 contribution limit for your TFSA is $6000.
Claim medical expenses
You can claim medical expenses that you or your spouse paid (and for which you were not and will not be reimbursed) for yourself, your spouse, and your children (if they are under 18 years of age at the end of the tax year) in 2021.
You may also be eligible to claim a portion of medical expenses that you paid for others who depend on you for support, like parents, grandparents, and siblings.
For the 2021 taxation period, you can claim the total of your eligible expenses minus 3 percent of your net income or $2,421, whichever is lower. This can result in significant tax savings, especially for families with lower income and increased medical needs.
At its most basic, income splitting is when a higher-earning spouse transfers a portion of their income to their lower-earning spouse. If your spouse is in a lower tax bracket than you, you may want to consider a few things: splitting pension income, lending money to your spouse, or making contributions to your spouse’s RRSP. With these strategies the household income stays the same, but you can potentially lower your tax bracket and the amount of tax paid overall.
Each of these approaches comes with their own legal implications, so consult with your financial advisor before pursuing this route.
File on time
This may seem obvious, but CRA will charge you a late-filing penalty if you file late and have a balance owing. The late filing penalty is 5% of your balance owing, plus an additional 1% for each full month you file after the due date, for up to 12 months. And, this amount could be even higher if you were charged a late-filing penalty on your return in any of the three previous years.
CRA will also charge you compound interest daily on your balance owing for the current tax year if you pay after the due date. This can rack up a hefty bill on top of any taxes already owing. File your return and pay any balance owing on time to avoid these extra charges.
While we encourage you to consider these tax-saving tips, we recommend that you meet with your Assante advisor to discuss what is right for you, based on your unique needs.