"How to Maximize Your Tax Savings: Tips for Individuals and Small Businesses"

Reducing taxes in Canada legally involves taking advantage of deductions, credits, and tax-efficient strategies. Here are some practical ways to lower your tax bill:

1. Maximize RRSP Contributions

• Contributions to a Registered Retirement Savings Plan (RRSP) are tax-deductible, reducing your taxable income.

• You can carry forward unused contribution room from previous years.

• Consider making a spousal RRSP contribution if your spouse earns less, to split retirement income and lower future taxes.

  
  

2. Take Advantage of TFSA

• While Tax-Free Savings Account (TFSA) contributions are not deductible, the investment growth and withdrawals are tax-free, helping you avoid capital gains tax.

  
  

3. Claim All Available Tax Credits

• Canada Workers Benefit (CWB) for low-income earners.

• Medical Expense Tax Credit if your medical expenses exceed a certain threshold.

• Home Accessibility Tax Credit for seniors or those with disabilities making home improvements.

• Tuition Tax Credit for eligible post-secondary education expenses.

  
  

4. Maximize Deductions

• Childcare Expenses: Claim daycare, babysitters, and summer camps.

• Moving Expenses: If relocating for work or school.

• Union/Professional Dues: Deduct fees paid to professional organizations.

  
  

5. Split Income with Family Members

• Consider income splitting with lower-income family members through dividends, a spousal RRSP, or paying family members for legitimate work in a small business.

• Use prescribed-rate loans to lend money to a spouse at low rates to invest in their name.

  
  

6. Use Capital Gains Exemptions & Deferrals

• The Principal Residence Exemption (PRE) helps avoid capital gains tax when selling your primary home.

• The Lifetime Capital Gains Exemption (LCGE) allows a tax-free gain on selling a small business, farm, or fishing property (up to $1,016,836 in 2024).

• Consider deferring capital gains by selling investments in a lower-income year or using a capital gains reserve to spread the tax over multiple years.

  
  

7. Incorporate a Business

• A Canadian-Controlled Private Corporation (CCPC) benefits from the Small Business Deduction (SBD), reducing corporate tax rates on the first $500,000 of active income.

• Pay dividends instead of salary to take advantage of lower tax rates on dividends.

• Write off eligible business expenses, including home office, vehicle, and equipment.

  
  

8. Claim Home & Work-Related Deductions

• Home Office Deduction: If working from home, claim a portion of rent, utilities, and internet.  For those employed and working from home you must provide a T2200 completed by your employer.

• Use of Personal Vehicle:  If required by your employer or self employed, you can track your mileage and claim a portion of your vehicle expenses including fuel, insurance and repairs and maintenance.  If employed, you must provide a T2200 completed by your employer.

• First-Time Home Buyer’s Tax Credit (HBTC) for new homebuyers.

• Multigenerational Home Renovation Tax Credit for families building secondary units for relatives.

  
  

9. Contribute to an RESP for Your Kids

• A Registered Education Savings Plan (RESP) grows tax-free, and the government contributes 20% on the first $2,500 annually.

• The student pays tax on withdrawals, often at a lower rate.

  
  

10. Defer Taxes with RRIF & Pension Planning

• Delay Registered Retirement Income Fund (RRIF) withdrawals until necessary to avoid immediate taxes.

• Consider pension income splitting with a spouse to reduce overall tax liability.