Paying less tax is the dream of every Canadian living in Canada. Less tax means more money and more savings. One way of reducing tax payments is the TFSA (Tax-Free Savings Account) which would be discussed later in this article. Having such an account will reduce your tax payment every year. For those who are interested in opening a TFSA, you can go online to check how.
How to pay less tax in Canada
By Keeping all necessary records
Some people do not care about keeping proper records of important transactions. This can create a problem later in the future if they need to show evidence of such transactions. Keeping your records diligently will prevent the loss of recipes that might help in reducing your tax. Additionally, the best thing is to keep digital records because paper records can be damaged or get lost without hope of recovery. But digital records are more reliable because you can make copies of the records and save them in multiple places. And if you only have paper documents, no problem. Just scan the documents and upload them to your computer, save them in your email and cloud storage.
Moreover, if there is an opportunity for tax reduction, these records will help you. You’ll have the records to show officials that you’ve been paying your tax. However, have hard copies in case of an audit.
Advantages of keeping records
- Keeps you organized
- You can easily access them anytime and anywhere (especially if you have digital records).
- Serves as proof or evidence in case you need to show a receipt in the future.
Tax Reduction by filing tax at the right period
Some people delay filing their taxes until it is too late. In Canada, June 15 is the deadline given to self-employed residents to file their taxes. But for those who are yet to pay their previous tax or owe CRA, the date is different. The government normally gives them till April 30 to pay. Failure to do so, they will pay late charges.
Furthermore, those who file after June 15 will also receive a late fine. They will pay five percent late fees and subsequently pay a one percent interest monthly from then on. This means that late payment of tax will incur additional money. But if you file and pay on time, you won’t need to pay more than the normal tax.
Hiring your family as your workers
In Canada, hiring family members like your kid or wife/husband has many benefits. One of the benefits is free income tax for the first salary the family member will receive. As you pay them salaries, so will your business tax reduction.
Note, you need to pay them reasonable salaries to be able to enjoy these benefits. In addition, there should be paper evidence of you giving them their salaries. The evidence may be in the form of your company’s transaction details. The details can be the transfer of money from your business account to their accounts. Also, there should be proof that your family members performed their assigned work which you paid them a salary.
By separating personal expenses from business expenses
Get a business debit or credit card to pay for any expenses related to your business. Use the card every time you need to pay for something for business purposes. It is easier to keep records of your expenses and know how much remains. Moreover, this will save you from getting into trouble with CRA during an audit. However, some expenses can be a bit complex, like getting the toilet in your home office fixed. In such situations, state how much you spent on the receipt and specify how the expenses are connected to your business.
Get TFSA and RRSP investments
RRSP and TFSA are tax reduction plans that help Canadian workers while in service and even after retirement. RRSP helps you save money when you are no longer in active service. While TFSA helps to reduce tax payments. Both RRSP and TFSA have limits, though.
RRSP (Retirement Savings Plan): RRSP shelters owners from financial problems after retiring. Those with RRSPs can protect their savings from tax deductions. To know how the deduction limit for RRSP, check the CRA’s latest assessment notice.
TFSA (Tax-Free Savings Account)
You can withdraw your savings at no cost when you have a TFSA. In 2017, the savings limit for TFSA was 5,500 dollars.
ConclusionIn summary, your tax reduction points mostly depend on you and your business decisions. Be diligent and punctual in your business dealings, and ensure you properly keep records. In addition, hire a competent accountant to help you identify what you can do to lower taxes. The accountant might discover things you may have overlooked. He might even help you with the RRSP process.