How do I pay less tax? With a careful tax-planning strategy in place, you can grow the wealth you have accumulated while minimizing your tax burden.
Being tax smart and investing in a tax efficient manner will help to optimize your investment return and minimize taxes paid. RRSPs and TFSA accounts are two types of tax savings plans and make all kinds of sense for most Canadians, but there are limits and once those limits are hit here are a few other ways to pay less tax.
They are commonly referred to as the 3 Ds of tax planning – Deduct, Defer and Divide.
Deduct as many expenses as possible whenever the opportunity arises. These deductions could include:
- Charitable Donations are eligible for the Charitable Donations Tax Credit
- Childcare Expenses may be deducted each year up to a certain limit
- Medical Expenses may be deducted each year up to a certain limit
- Interest Expenses may be deducted on interest paid to “earn an income”
- Moving Expenses may be deducted based on rules outlined in the Income Tax Act
Defer paying taxes on your money if possible – this could include strategies such as:
- Contributing into an RRSP and taking funds out when you are at a lower tax bracket
- Carrying Tax Deductions into the future when you are at a higher tax bracket
- Carrying Tax Credits into years when you may be owing more taxes
Divide your household income with your spouse through careful planning to ensure minimal taxes are paid.
- Consider holding non-registered investment in joint name so taxes upon disposition & income earned is split between both partners
- A higher income earning partner could contribute into a spousal RRSP to receive a higher tax refund, while the lower earning income spouse could withdraw these funds at almost no cost – careful planning should be done around this as there are attribution rules under the Income Tax Act
Speak with our certified financial planner who can talk to you about the various ways you could reduce your taxes and some planning strategies to make the most out of your tax situation.