May

10

How Can Canadians Reduce Their Taxes?

May 10, 2008 |

No one likes to pay taxes, but our taxes go to fund many important things in our day to day lives. There are several strategies that you can leverage to assist in reducing your personal taxes. Here are some tax reduction strategies:

Join a Registered Education Savings Plan (RESP) for your Kids

If you have school age children, a RESP is a good way of reducing your yearly tax bill. Not that its tax deductable, but the earnings from the plan are not subject to tax for the next 25 years. Saving up to $2000 per child will earn you $400 grant per year, or 20 percent of your contribution.

Make regular RRSP payments

Arrange for your contributions to be deducted from your bank account and into RRSP every month. Monthly contributions offer slightly better returns than yearly lump sum payments. If for some reason you don’t have some extra cash to make RRSP contribution, you can save over time or even borrow in order to fund the investment. The long term compound interest benefits far outweigh borrowing costs to make a contribution.

Treat tax refunds as a bad sign

Whereas many of us would love to get a tax refund for all our tax contributions, any tax refund is a sign of bad tax planning as you are giving the government an interest free loan all year. And the worst thing is, you won’t get even a “thank you”. This is money that could be earning interest in an investment, or money that could be used for any one of your financial goals. You can remedy this by asking for a T1213 form from your employer and reduce the amount taken off your salary every month so that you come closer to zero when it comes time to file your taxes; no money owed and no money to get back in a refund.

Keep a track on all your medical expenses

By doing this you may find that you are entitled to a tax credit if the medical expenses reach the set threshold (the total amount must exceed $1,844 or 3 percent of the net income, whichever is lower). You can also drive up the figure to meet the threshold by adding the health-care premiums that you are paying at work. You can choose any 12 month period ending in the tax year that you are filing, so you may choose the period where most of your medical expenses were incurred.

Put caps on spending

This option is not always obvious to many who think of tax as only comprising of income tax. The truth is you pay GST and provincial sales tax in every purchase we make. So you want to reduce this kind of tax burden, spend less.

Claim those moving costs tax breaks

Since 2005, if you relocate at least 40 kilometers because of your job or to start a business, the costs associated with relocation can be deducted. Many people miss out on these deductions as they are mostly unsure of what they are entitled.

Monty Loree is the founder of http://www.canadian-money-advisor.ca which helps Canadians better understand their money, credit and the financial industry in Canada. In our financial podcasts, we are interviewing industry experts who give our visitors the truth about the financial industry. Canadian Money Advisor is an important source for Canadians to learn more about their money. Canadian Money Blog: http://www.canadian-money-advisor.ca/archives

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