1. Discover the Perfect Tax Credit or Deduction for Your Unique Life Circumstance
Here are a few areas to consider, based on your own personal situation, for reducing your tax payable. Examples:
Medical expenses
Moving expenses
Childcare expenses
First-time Home Buyer’s contributions
Disability tax credit
Tuition
Employment expenses
Digital news subscriptions
Business losses
Investment losses
For more information on the types of deductions, please click here.
Here’s a handy checklist to help with what you’ll need.
Still need help?
2. Leverage income splitting strategies
Income splitting offers a powerful tool for optimizing tax liabilities both before and during retirement. Pre-retirement, couples can utilize spousal RRSPs to distribute income more evenly. Here’s how it works:The higher-earning spouse contributes to the RRSP of the lower-earning spouse, within their contribution limits. This action triggers a tax deduction for the higher earner, reducing their taxable income. Later, when funds are withdrawn from the lower-earning spouse’s RRSP, they’re taxed at the lower income tax rate, resulting in overall tax savings for the couple.However, it’s crucial to adhere to the Income Tax Act’s guidelines: funds must remain in the RRSP for three years. Failure to comply will result in the higher-earning spouse becoming liable for taxes on the funds.
Similarly, income splitting extends into retirement, particularly concerning pension income. Up to 50% of pension income can be shared, benefiting both spouses. Eligible pensions include annuity payments from RRSPs, payments from RRIFs, and life annuities from various pension plans. Notably, pensions like CPP, QPP, and OAS cannot be split.
By strategically employing income splitting techniques, couples can significantly reduce their tax burden and optimize their financial outlook both now and in retirement. Get more information here.
3. Support a cause close to your heart (remember to keep the receipt)
Making a donation to a registered charity or other donee could qualify for a tax credit.Typically, you can claim a portion or the entirety of your eligible donations, with the maximum limit set at 75% of your net income for the year. This presents an opportunity to not only support worthy causes but also reduce your overall tax burden, offering a win-win scenario for both charitable organizations and taxpayers. Read more here.
4. Maximize your RRSP’s, TFSAs, and RESPs
These savings vehicles have distinct advantages and disadvantages when it comes to tax savings. It all depends on your personal situation.The RRSP offers you a tax shelter when you make a contribution within a tax year. That means whatever you contribute to your RRSP you can use it as a tax deduction. That being, said, your RRSP contribution room in any given year is 18% of your gross income. If you over contribute, then you will be charged a penalty.A Tax-Free Savings Account (TFSA) is a versatile savings plan that allows Canadians, 18 and over, to save and invest money without paying taxes on the returns when they withdraw. Unlike other savings plans, a TFSA doesn’t offer an immediate tax shelter, but it provides significant tax advantages over time.Check your CRA MyAccount or your latest Notice of Assessment for more information your contribution room for both the TFSA and RRSP.Here is a quick overview of the different savings vehicles.
| Savings Vehicle | Advantages | Disadvantages |
| RRSP (Registered Retirement Savings Plan | Contributions reduce your taxable income Growth is tax-deferred Unused contribution carries forward | No government grants Lifelong Learning Plan is not applicable for children’s education Withdrawals are taxable |
| TFSA (Tax-Free Savings Account) | Growth and withdrawals are tax-free Allows for re-contribution of funds | Low annual contribution limit No government grants Contributions are not tax-deductible |
| RESP (Registered Education Savings Plan) | Access to government grants of 20% up to $500 in a year Growth is tax-sheltered Can set up family plans for multiple children | Planning needed to maximize grants Contributions not tax-deductible Withdrawals taxed at the student’s rate (usually low) Maximum allowable contribution is $50,000 |
Don’t know how to check your contribution room or need guidance setting up your CRA My Account? Contact us.
