Author Topic: Top Tax Tips for Canadians?  (Read 2011 times)

totoro

  • Handlebar Stache
  • *****
  • Posts: 2091
Top Tax Tips for Canadians?
« on: September 27, 2013, 04:16:31 PM »
I'm not an accountant but I have benefited from some tax rules. 

If you have some tax planning strategy or deductions that have been helpful in reducing your tax rate maybe you can post them? 

For us, a home office and a suite in our primary residence have been helpful because we can deduct mortgage interest based on the % of floor space used as a rental/office and all direct expenses.   We don't claim capital cost allowance on the property because we would like to maintain our capital gains tax exemption to the extent possible.  If your rental is furnished you can write off a depreciation amount each year.

In order to preserve the CCA on a principal residence:
•your rental or business use of the property is relatively small in relation to its use as your principal residence;
•you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
•you do not deduct any CCA on the part you are using for rental or business purposes.

Here is a link to more info (see comments):
http://www.milliondollarjourney.com/rental-property-income-taxes-and-deductions.htm

And the CRA guide:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-e.html

Kazimieras

  • Stubble
  • **
  • Posts: 167
  • Location: Ontario, Canada
Re: Top Tax Tips for Canadians?
« Reply #1 on: September 30, 2013, 01:38:28 PM »
So here is some stuff I try to follow:
  • T1213s are your friend. If you know how to handle extra money in your account, use this. Rather than overpay in taxes every year and receive a nice refund (for which you earned 0% interest on the entire year), have your deductions kick in on your paycheque. Any interest is then yours!
  • Never get too creative with deductions. The CRA has some great examples on their website and they have some very good rules such as the "minimum tax rule" which states "If you try to game the system to pay less than the minimum tax required, we will hunt you down". This is important since remember the tax man is unfortunately king in the realm of taxes.
  • If you own a business know the difference between capital costs and expenses. It is important to know when a purchase will fall into which category and what the threshold is. We recently had some work done on our rental property and since it was under 2k it is an expense and is deducted from out income this year (which is what we wanted), had it been over 2k, we would have realized the deduction much slower.
  • RRSPs are great ways to reduce your tax rate. However don't necessarily contribute to them in years when your income will be low as you will likely get better 'bang for buck' by saving it for a future year.
  • When you contribute to an RRSP, you are not required to declare it that year. Yes you pay tax for that year, but it can be great when you're in the situation in the bullet above.
  • RRSPs are awesome for low-risk investments. Unsheltered accounts are awesome for high-risk investments, such as stock purchases. You cannot deduct a capital loss from or within an RRSP, but it is possible on unsheltered accounts.
  • If you're starting out, the HBP (home buyer's plan) is a way to borrow and penalize your future self. Use a TFSA instead. The exception is if you are already in a high tax bracket and expect little room to move up.
  • If you earn more than your spouse, use income splitting. You can also have your partner take out a loan from you to invest. These two things are ideal if the pay between the two people is radically different.
  • Never forget about your lifetime capital gains exception (certain conditions apply - in simple english http://www.josephtruscott.com/article33.htm)
  • Medical expenses and other things such as charity contributions are done over a 12 month period and NOT over the tax year. Therefore it can pay to be selective when to declare them.
  • Look over the deduction options, there are programs in there that are designed to benefit people - however most people never claim them. My favorite example is did you know that if you're medically diagnosed (key here is medically - your naturopath does NOT count) with celiac disease, you can deduct the difference between the cost of a regular item and the gluten-free alternative? E.g. If pasta cost $1, and the gluten free one was $1.50, you are able to deduct the $0.50. It may not sound like a lot but it can add up.
  • And lastly, spend some time and read a good tax book or two. It will help you ask the right questions and will likely be the highest hourly earning you will ever achieve (my read from a couple years ago is yielding ~$1000/hour)

totoro

  • Handlebar Stache
  • *****
  • Posts: 2091
Re: Top Tax Tips for Canadians?
« Reply #2 on: September 30, 2013, 09:32:13 PM »
You know what is awesome - you Kazimieras!  Those are great tips.  And difficult to grasp for someone just starting out.

I have read a couple of tax books and agree they help.

I think for me the other thing that has been extremely helpful is being self-employed and owning a corporation.  Dividends can be very good things.

Couple of other links:
http://www.canadianbusiness.com/investing/when-business-owners-should-and-shouldnt-make-rrsp-contributions-2/
http://www.ica.bc.ca/kb.php3?catid=1236&mobileSession=af3ffcfdad1454b19a1ae437ea7f8824