Save money on taxes in Canada
People say that our future depends heavily on the decisions we make now. That’s true! We should think of future financial security, not only for ourselves but also for our familes. We need to save for an uncertain future.
Canadian Tax Laws are stringent by nature and escaping them is not an option. However, there are various ways in which you can actually save on taxes!
If we want to save, we can come up with ideas to save. Below are some tips with short descriptions that can prove to be handy in helping you save on taxes in Canada.
- If you have any non-tax-deductible debt, you can use a greater amount of your gross income to pay it off in a shorter term. This helps in reducing the interest payment for your debt.
- Alternately, use a major proportion (at least 15%) of your income (gross) to invest in RRSP. Ensure that in the long run, the returns from RRSP are greater than the interest accrued on your borrowing. This however, is prone to stock market volatility. Investing in RRSP will help you to save on taxes and you can either use the money for further investments in RRSPs or spend it right away. The second option will leave you with less money post retirement.
Withdrawing money from an RRSP after retirement or while you are unemployed will usually be in your favor, this is because the Canadian government follows a Progressive tax structure, where people with greater income pay higher taxes and those with lower income pay lower taxes.
Cutting down the day to day expenses can help you save some money. Consumption of goods leads to certain sales tax which can be avoided as long as unnecessary consumption is curtailed. These extra savings can be used for current investments leading to future income benefits in the form of interest. Tax rates applied to this interest is less than the tax rates applied when you actually contribute to the GDP or GNP.
Investing outside RRSPs (i.e. in non-registered accounts) is better if, even after retirement, you fall under a high tax bracket. Remember to invest in capital gains and not any interest generating bonds or investments. Capital losses can be used to minimize capital gains tax and you can show capital loss if you purchase bonds at a high premium rate. This capital loss can reduce the capital gains tax on maturity to a sizeable amount and as a result, this can reduce taxes owed. Avoid selling any investment prior to your retirement because, that will produce taxable capital gains while you are still in a higher tax bracket.
So, think before you invest and plan your expenditures and investments.
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