Invest in RRSP’s
One of the best dollar for dollar ways to reduce your personal income amounts, and thus your income tax is by investing into Registered Retirement Savings Plans. With RRSP’s you can invest a maximum of $26,230 or up to 18% of your annual personal income. The idea of RRSP’s is to defer the income tax you would pay this year and grow your investment tax free. To find out more about these, see our article from last week to help you get started.
Invest Using a TFSA
Using a Tax-Free Savings Account to store your investments in is a great tax-free way to save for the short term, or long term. Unlike an RRSP, a TFSA won’t reduce the amount of income you pay on your annual personal income amounts however your investments will grow inside the account tax-free. Therefore it’s wise to hold any of your eligible investments in a TFSA to avoid paying capital gains on the investment. Contribution limits begin when you turn 18, and carry forward indefinitely without cumulative limit year after year. This means that anyone born in 1991 or earlier who have never opened or utilized a TFSA could have an upward contribution amount available of $57,500 as of 2018. To see the corresponding limits for each year visit the Canada Revenue Agency’s website here.
Another item to be aware of to reduce your tax payable is to claim medical expenses for yourself and your family. This can be in the form of payments towards a child’s braces, medical prescriptions, or prescription contacts or glasses. While these items can alter your monthly budget, you may be eligible for some tax relief towards these payments. Each year the maximum amount differs, currently in 2018 the maximum claim amount is the lower amount of 3% of your income, or $2,302.
Setup and Contribute to RESP’s
For those of you with eligible dependents, setting up a Registered Education Savings Plan (RESP) is a great method to put money aside for your children’s post-secondary education. While there is no longer an annual contribution limit, it is limited to a lifetime contribution limit of $50,000 per beneficiary. While like the TFSA, the deposits made are not tax-deferred they do grow inside the account tax free and qualify for the Canada Education Savings Grant (CESG). The CESG is a grant that the government gives out to match 20% of the first $2,500 contributed annually to the RESP, with a yearly limit of $500 and a lifetime limit of $7,200 per beneficiary. Any unused CESG amounts can be carried forward to the next year. It’s worth noting that withdrawals from the RESP are not tax free. Withdrawals are attributed towards the student beneficiary however and will be subject to their income tax. The benefit here is the student will likely be at a very low income tax rate and may end up paying little to no tax at all on the payments.
Tax Loss Selling
If you own any investments that are going to end up in a capital loss position, consider offloading these to realize a capital loss that will help you offset any capital gains you may have also made this year. Any realized capital losses may be attributed back by up to three years, or carried forward indefinitely. One consideration to note here is if you claim a loss be aware of the “superficial loss period” a rule stating that once an investment is sold and claimed as a loss, it cannot be purchased back within a 30 day period. If this does happen your capital loss claimed will most likely be denied.
Student Loan Interest Payments
Any interest paid on student loans can be claimed within the current tax year. The stipulation to this is that only the student can claim the interest payment credits, a parent, relative, or spouse can make the payments on their behalf. This is a non-refundable tax-credit meaning you won’t get any cash back for claiming the interest payments but it will lower the amount of tax owing at the end of the year.
Making charitable donations is a great way to grab a tax break and support a worthy cause of your choice. These donations are immediately tax deductible at the allotted rate both federally and provincially. There is no upper limit to what you can donate for a tax credit, as long as the charity is listed with the CRA and is a qualified charity. Depending on the amount of the contribution, you could see a total tax credit equal to anywhere from 15% to 50% of your donation. To see a full list of charitable donation tax credit rates check out the CRA’s website here.
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