If you are subjected to pay Canadian income tax and looking for effective ways to save money from it, here is the right article for you! Let us find out what you can do to reduce your income tax legally.
1. Take Advantage Of Your RRSP
RRSP (Registered Retirement Savings Plan) is a type of account for saving and investing. The pre-tax money you put in this account is tax deductible, which means it will not be taxed only if you withdraw from it. The money in this account can decrease your taxable income!
Notice:
There is penalty for over contributions. The annual limit on the money you put in RRSP is a portion of your income this year and unused space from previous years.
2. Borrow Money To Invest
If you have borrowed money to invest as part of your financial plan, good news – the interest associated with the borrowed money may be tax-deductible. It increases your after-tax rate of return on the investment and improves your financial position. But be careful, using borrowed money to finance triggers more risk than simply using cash. You are responsible for repay the principle and the interest according to the terms.
3. Deduct Employment Expenses
Certain employment expenses are deductible for your personal income taxes, including parking, supplies, office rent, salary expenses, etc. When you are working from home because of COVID-19, the expenses generated from your working place may be eligible for tax-deduction.
But keep in mind, it is tax-deductible only if you are required to pay these expenses according to your employment contract and you did not receive any allowance for them. You can use Form T777, Statement of Employment Expenses to calculate employment expenses.
4. “Home Buyers Plan”
This is a program that allows Canadians to withdraw from the RRSPs when making a down payment for purchasing or building houses without paying tax on this fund. Since 2019 the withdrawal limit increased to $35,000 but you have to make sure it is considered a “Qualifying Home”. You have up to 15 years to repay your RRSP, starting from the second year of you first withdrawal. For example, if your first withdrawn occurred in 2020, then your first year of repayment would be 2022. To fill out the Home Buyers Plan (HBP) request form, please visit the website.
5. Maximize The Medical Expense Tax Credit
In this list, you can find whether your health care expenses can be tax deductible. The claimable medical expenses can range from dentals visits to organ transplant. But the unreimbursed medical expenses must exceed a threshold in order to get this tax credit. The threshold in 2020 tax year is the lower of 3% of net income or $2,397.
Notice:
You can use the entire family’s medical expenses and either spouse can claim the credit. Usually, to keep the threshold lower, the spouse with lower net income can claim the credit.
Disclaimer:
The intention of this article is to provide general information. It does not take your personal situation into consideration and it is not advisable to use without consulting accounting, tax and financial professionals. Muhammad Nasrullah CPA will not be held responsible for any issues that arise from using the information provided on this page.
Muhammad Nasrullah,CPA, CGA, LPA
Chartered Professional Accountant
Licensed Public Accountant
206A – 2365 Finch Ave. West North York, ON. M9M 2W8
Tel: (1) 416-748-0817 ext 101 Fax:(1) 416-748-6814
www.nasrullahcga.com E-mail: muhammad@nasrullahcga.com