Tax Saving Tips

There are several ways of decreasing your taxes if you live in Canada. You don't have to be a financial professional, it is enough if you consider some of the following tips.

Employ your family members

If you own a business, you may considering paying a salary to your wife, husband or children. Be aware, however, that the salary must be reasonable for the services that members of your family perform. No Canada Pension Plan, or CPP applies to children under the age of 18. You should discuss the application of employment insurance with your tax advisor.

Invest to an RESP

Registered Education Savings Plan (RESP) is sponsored by the Canadian government to encourage investing in a child's future post-secondary education. Thus, you can save money for post-secondary education of your child and in the same time get income splitting. Even if these contributions are not deductible, the income grows tax-free. The future draws are income to your child at a time when he presumably still has very little or no income. This way you make his tax minimal.

Give family loans

You may consider lending money to a member of your family in a low tax bracket. As long as you charge interest on the loan at an interest rate prescribed by the Canada Revenue Agency's at the time the loan is made, there will be no attribution back to you on the income earned on the invested funds for which the loan was used. They should pay interest annually to the lender by the 30th of January of the following year. This interest is deductible to the borrower and is taxable to the lender. Depending on the investment yield, tax savings may be achieved.

Contribute to a spousal retirement savings plan

If you earn more than your spouse, you should contribute to a spousal RRSP in the name of your spouse as annuitant. The goal is to have both RRSPs equal. The deduction is to the higher-income spouse, but draws in the future are by the lower income spouse.

Deduct interest

Interest on home mortgages or car loans is not usually deductible, while interest on loans used to earn business or investment income is always deductible. Therefore, you may want to try to ensure that all loans you take out are for a deductible purpose. If you have extra funds that you would like to use for investments, pay off your mortgage first, then take out a loan for investment purposes.

Medical expense credit

You may include premiums paid for private health insurance in your medical expense credit. You may be able to claim eligible medical expenses that you paid for dependents such as a child over 18, a grandchild, you or your spouse's parent, grandparent, brother, sister, aunt, uncle, niece, or nephew who was a resident of Canada at any time in the year, depending on their income level and up to a maximum of $10,000 per dependent.

Donations

Consider donating publicly traded securities with accrued gains to a registered charitable organization instead of donating cash. No tax is payable on capital gains that you make by donating listed shares to a charitable organization. Under these circumstances, the charity receives a larger amount than it would have received if you were to sell the shares and donate the proceeds after paying tax on the gain. You receive a donation receipt, and hence a donation credit, for the full market value of the shares, while paying no capital gains tax on this disposition.

Estate planning

Ask your tax advisor regarding the benefits of ‘freezing' the current value of your estate with future growth accruing to the next generation, establishing one or more family trusts and a spousal trust in your will, planning for charitable donations in your will, joint tenancy for investments, use of multiple wills for probateable and non-probateable assets, etc.

I hope you will find these tips useful. Please let me know what you think of them. You may find some more useful information on my Life Insurance Canada website.