With the income tax season right around the corner, here are some tax tips that could help you save money on your Canadian income tax filing.
1. Contributing to RRSPs
This is one of the easiest tax tips which apply to most Canadians in the workforce. Has your financial advisor been coaching you to add regular amounts to your RRSP? This little nugget of wisdom not only helps you save for the day when you are no longer earning a pay-cheque, but also helps you defer paying taxes on that money today, as well as grow that money tax deferred. This tends to be one of the single most impactful tricks to reducing your tax liability for most tax payers.
2. Claiming all eligible medical expenses
Most people don’t bother tallying their medical expenses as a result of the qualification threshold: expenses exceeding the threshold of $2,237 (2016) or 3 percent of net income can be claimed (as per the Income Tax Act). Annual medical expenses can easily add up and the list of qualifying expenses is long. Keep your receipts and make sure to talk to a tax expert if you are unsure about qualifying expenses.
3. Transferring unused tax credits
There are a number of tax credits for students that are eligible for transfer to a spouse, parent or grandparent. These can be transferred after the credits have been used to reduce the student’s taxable income to zero. So if you are a parent with children attending post-secondary schooling, these tax credits may be extremely valuable to you as you may be in a higher tax bracket. This benefit can be especially useful for married couples when one individual goes back to school and the other is in the workforce.
4. Don’t have any income!? Don’t think you shouldn’t file a tax return
So many individuals out there think that if they don’t make any income that they don’t or shouldn’t file an income tax return. Think again. Aside from the fact that we are all obligated to file income taxes on an annual basis despite the level of individual earned income, the government has a whole host of qualifying benefits for low income earners. If you don’t file your taxes, you don’t get the benefits.
5. Pension-splitting and pension sharing
Although income splitting (Family Tax Cut) was recently scrapped by the Trudeau Liberal government for 2016 and later years, pension sharing and pension-splitting are still very effective ways that households can reduce their overall tax liability. For qualifying households, these tax initiatives help put more income into the hands of the lower-income partner. If taken advantage of, these tax initiatives can help some families reduce their overall tax liability by hundreds, if not thousands of dollars.
Authored by Isaac Musial