Are you looking for ways to save taxes in Canada? Taxes are an unavoidable part of life, but there are a few strategies that can help you reduce your tax bill. In this blog post, we’ll look at six ways to save taxes in Canada. From strategic deductions and credits to taking advantage of tax-sheltered accounts, there are many opportunities to reduce your tax burden. Read on to learn more about how to save taxes in Canada.
1. The Registered Retirement Savings Plan (RRSP)
The Registered Retirement Savings Plan (RRSP) is an excellent way to save for your retirement. It allows you to set aside funds and defer the taxes until you begin withdrawing money from the plan when you retire. Any income you earn on investments within an RRSP is also tax-sheltered until withdrawal.
Contributing to an RRSP can also help reduce your taxable income. Contributions made during the year can be deducted from your taxable income, thus reducing the amount of taxes you owe. It’s important to remember that the maximum annual contribution limit for RRSPs is 18% of the previous year’s earned income, or $27,830 for 2020, whichever is less. Additionally, contributions made before the end of the calendar year will be credited toward your total allowable contribution limit for that year.
Another great feature of the RRSP is the ability to borrow money for large purchases such as a home. The Home Buyers’ Plan (HBP) allows first-time home buyers to withdraw up to $35,000 from their RRSP to buy or build a qualifying home. This money must be repaid within a 15-year period, or you may face serious tax consequences.
The RRSP is a great tool to save for retirement, and with proper planning and professional advice, it can be a great way to save money while planning for your future.
2. The Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) is an incentive program that allows Canadian first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) without incurring taxes. To be eligible for the HBP, you must be a first-time home buyer, have signed a written agreement to purchase or build a qualifying home, and have resided in the home as your primary residence within one year of purchase.
When you withdraw funds from your RRSP under the HBP, you will not have to pay any tax on the withdrawn amount as long as it is repaid back into your RRSP account over a period of 15 years. The repayment period begins two years after you make the withdrawal and must be completed within 15 years. The repayment amount is set each year by the Canada Revenue Agency and must be paid at least once every calendar year.
The HBP provides a great opportunity for first-time home buyers to save money on their tax bill. While the amount that can be withdrawn is limited, the savings generated by the HBP can be substantial. For example, if you withdraw $20,000 from your RRSP and repay it over the 15-year period, you will save nearly $7,000 in taxes.
Overall, the Home Buyers’ Plan is an excellent tool for Canadians looking to purchase their first home. By taking advantage of this program, you can save money on taxes while investing in your future.
3. The Life Long Learning Plan (LLP)
The Life Long Learning Plan (LLP) is a great way to save on taxes and also further your education. This program allows Canadians to withdraw funds from their Registered Retirement Savings Plans (RRSPs) in order to finance their training or education without having to pay tax on the money they withdraw.
In order to be eligible for the LLP, you must be enrolled in a qualifying educational program. This could include post-secondary or full-time training programs such as college, university, or a professional certification course.
You can withdraw up to $10,000 in a calendar year and up to a total of $20,000 from your RRSPs over the course of your lifetime. This money can be used towards tuition, textbooks, living expenses, and transportation. The money withdrawn from the RRSP cannot be used for any other purpose than those related to the education or training program.
Once you complete the program, you have 10 years to repay your RRSPs back with equal payments of no less than $2,000 per year. It’s important to note that if you don’t pay the money back, the amount you withdrew will be added to your taxable income.
The LLP is an excellent way to save on taxes while also furthering your education. This program can make it easier to pursue education without worrying about additional costs.
4. Child Care Expenses
Child care expenses are another great way to save money on taxes in Canada. You can claim eligible child care expenses on your income tax and benefit return when you file each year. You can claim up to $8,000 per child under the age of 7, and $5,000 per child aged 7 to 16. This amount is lowered if your spouse’s income was over $42,707.
Before you start claiming your child care expenses on your taxes, it is important to make sure you have all your receipts for the expenses you paid for during the year. This includes any daycare, babysitting or nanny fees, as well as costs related to activities such as camps and recreational programs. You can keep all these records organized throughout the year with the help of tax preparation services.
You can also claim certain related expenses when filing your taxes, including transportation costs for getting your children to and from their care provider, and even amounts spent for special diets for children with severe allergies.
By claiming your child care expenses, you can save a significant amount of money on your taxes, so make sure to take advantage of this opportunity.
5. Charitable Donations
Making charitable donations is one of the most effective ways to save taxes in Canada. All donations made to eligible charities are tax deductible and can be claimed as a tax credit. Depending on your tax bracket, this could result in considerable savings. The amount you are allowed to claim for a charitable donation depends on the type and amount of donation, so it’s important to understand the rules before making any donations.
If you have made donations of money or certain property during the year, you may be eligible for a tax credit on those donations. The value of the donation must be greater than $20 and must be supported by a receipt from the charity. If the amount of your donation is more than $200, Form T1201 must also be completed and submitted with your return.
Donations to Canadian registered charities and other qualified donees are eligible for the federal tax credit. If you are donating to an organization that is not a registered charity or a qualified donee, you will not receive the tax credit. In addition, donations made to foreign charities, political organizations, or private foundations are not eligible for tax credit.
It’s important to note that you can also donate shares or other forms of property to an eligible charity and receive a tax credit based on the fair market value of the donated asset. There are some complex rules around donating securities, so it’s important to consult a qualified tax professional before doing so.
If you’re looking for an easy way to save taxes in Canada, consider making charitable donations. Not only will you save on your taxes, but you’ll also be helping to make a difference in your community and beyond.
