Tax Accountant Mississauga - 10 Ways To Pay Less Tax In Canada
Want to learn 10 ways to pay less tax in Canada from a Canadian Tax Accountant
? Than you won't want to miss this interview with Allan Madan a Tax Accountant in Mississauga Ontario Canada, as he describes, 10 ways you can start using to pay less tax now.
10 Ways To Pay Less Tax In Canada
1. Contribute to a RRSP
"The number 1 way to pay less tax in Canada is to contribute to a RRSP," says Tax Accountant Mississauga. Contributions made to a RRSP are tax deductible and any income earned inside a RRSP is not subject to tax. Therefore, RRSP's are an excellent way to save for your retirement, while reducing taxes at the same time.
2. Contribute to a Tax Free Savings Account (TFSA)
"The number 2 way to pay less tax in Canada is to contribute to a TFSA," says Tax Accountant Mississauga. A TFSA is exactly what it sounds like: a savings account, the profits on which are not subject to income tax. Its tax free nature is what makes a TFSA very attractive to investors. A TFSA can be an interest paying bank account, mutual funds, public company shares, or other types of investments. Contributions made to a TFSA are not tax deductible. However, withdrawals from a TFSA are not taxable. This is the opposite of a RRSP where contributions are tax deductible and withdrawals are taxable.
A detailed comparison of TFSA's vs. RRSP's, is available in Allan Madan's website blog by browsing the links supplied at the end of the article.
3. Don't file your Canadian tax return late
"The number 3 way to pay less tax in Canada is to file your tax return on time," says Tax Accountant Mississauga. Filing your tax return past the deadline is a bad idea, because of the interest and penalties imposed by the CRA for filing late. The penalty is computed as 5% of the balance owing on the due-date, plus 1% of the balance owing on the due date for every month the tax return is past due. On top of the penalties, interest is charged at the CRA's prescribed interest rate + 4%. The filing deadline for individuals is April 30 and for sole proprietors is June 15.
For more information on the tax implications of filing past due tax returns, browse the links supplied at the end of the article.
4. Be generous and give a gift to your child
"The number 4 way to pay less tax in Canada is to gift assets that will grow in value to your child," says Allan Madan, Tax Accountant Mississauga. Giving a gift to a child is good for obvious reasons. It also has many tax advantages.
Canadian tax law stipulates that any capital gains earned on the sale of investments that were gifted to a child by a parent, will be included in the child's taxable income. Since your child likely has a lower tax rate than you, it's a smart idea to buy appreciating assets (such as stocks, mutual funds, or real estate) for your child, instead of owing them yourself.
5. Write-off your car expenses, says Allan Madan, Tax Accountant Mississauga
"The number 5 way to pay less tax in Canada is to write-off your car expenses" says Tax Accountant Mississauga. As an employee you can deduct expenses related to your car on your personal tax return, including:
- Fuel and oil
- Maintenance and repairs
- Insurance
- Parking
- Toll charges
- Vehicle registration fees
Only the employment use portion of your car costs are tax deductible. The employment use portion is determined by the following formula: (Total KMs driven for employment purposes / total KMs driven during the year) x 100%
Two conditions must be met before you can write off your car expenses:
- You are required to use your car to carry-out your employment duties and this must be stated in your employment contract
- Your employer must complete Form T2200, Declaration of Conditions of Employment
6. Park your savings offshore
"The number 6 way to pay less tax in Canada is to move your investments to a country that has a low rate of tax or no tax at all," says Allan Madan, Tax Accountant in Mississauga. Parking your money offshore is a legitimate tax strategy that is compliant with Canadian tax law. This tax savings strategy involves investing your income producing assets (such as stocks and bonds) in a tax-free country, such as Cyprus, that has a tax treaty with Canada. That doesn't mean you have to own Cyprus stocks or bonds. Rather, your investment savings account (which could be comprised of stocks and bonds traded on the TSX or NYSE) would be located in Cyprus.
Any income or gains generated on your investments in that offshore country will not be subject to tax. However, when you bring the money back to Canada, you will end up paying some tax. Or, you could just leave the money offshore and spend that money outside Canada, to avoid paying Canadian tax.
7. Pay a salary to a family member
"The number 7 way to pay less tax in Canada is to pay salaries to family members," according to Allan Madan, Tax Accountants in Mississauga. If you are a business owner, you should consider paying salaries to your family members, if they are in a lower tax bracket than you.
For example, assume that you pay yourself a salary of $60,000 annually and you have 2 children who are 14 and 16 years old, respectively. To save taxes, you should reduce your salary by $20,000 and pay $10,000 to each of your two children. Since the first $10,320 of income is tax-free, your children won't pay any income tax on the salary that they receive.
8. Incorporate your small business in Canada
"The number 8 way to pay less tax in Canada is to incorporate your small business," says Allan Madan, Tax Accountant Mississauga. Small business corporations in Canada pay a very low rate of tax. In the province of Ontario, Canada, the combined Ontario and Federal income tax rate is only 16.5% on the first $500,000 of taxable income.
Individuals, on the other hand, pay much higher taxes than corporations. In the province of Ontario, Canada, the highest marginal tax rate is 46.4% for individuals. Therefore, you can save up to 30% in taxes by incorporating your small business.
9. Shareholder loan repayments
"The number 9 way to pay less tax in Canada is to make shareholder loan repayments" says Allan Madan, Tax Accountant Mississauga. A shareholder loan is money owing by a corporation to its shareholder(s). Shareholder loans can originate from cash advances made by a shareholder to his corporation or from expenses paid by a shareholder on behalf of his corporation.
Since shareholder loans can be repaid on a tax-free basis, it's better to repay shareholder loans before paying salary or dividends, both of which are taxable.
10. Write-off everything (within reason)
"The number 10 way to pay less tax in Canada is to write off all business related expenses," says Allan Mada, Tax Accountant Mississauga. The Canadian Income Tax Act stipulates that expenses incurred for the purpose of earning income from business are tax deductible. Therefore, as long as the expense is business related, it's tax deductible.
This interview was with Allan Madan of "Madan Chartered Accountant", in Mississauga Ontario Canada. Here he shared 10 ways he knows you can use to pay less tax. Allan enjoys working with individuals, business owners and investors. As a Tax Accountant in Mississauga, Allan's focus is on helping his clients beat the taxman.
by: Phillip Maguire
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