Income Tax: Top 10 tax tips for Canadians

  1. Open a Tax-Free Savings Account. TFSA is a new product introduced by the Canadian government in 2009. The basic premise behind a TFSA account is that your money, once placed in the TFSA, will earn tax-free interest for life. All Canadians of legal age can open a Tax-Free Savings Account and deposit the maximum of $5,000 per year.
  2. Open an RESP account for the kids. A Registered Education Savings Plan is a great way to save for your child’s education. The plan allows for the money that you deposit to grow tax-free until your child is ready for post-secondary education.
  3. Investigate Income-splitting. This strategy is where a higher-income spouse loans money to the lower-income spouse to be invested.
  4. Maximize your RRSP contributions for the year. An income you earn in an RRSP is, for most part, exempt from taxes as long as that income remains in the plan. However, in the event you decide to withdraw or to cash in the money, you will be taxed.
  5. If you or someone you know has disability, you may want to consider opening a RDSP account. The registered Disability Savings Plan is limited to $200,000 over the lifespan of a disabled person.
  6. Setup a spousal RRSP. The primary reason for opening a spousal Registered Retirement Savings Plan is that the withdrawals can be taxed in the hands of the annuitant rather then the contributor. If your spouse is in the lower tax bracket in the year of withdrawal, there may be tax savings.
  7. If you are receiving a pension, it may be feasible for you to split up to half of the pension with your spouse.
  8. Make your interest expense tax-deductible by borrowing to invest instead of paying non-deductible interest on a mortgage.
  9. Minors with earned income should file tax returns to generate RRSP contribution room that can be used in future years.
  10. If you own and rent a portion of your property, you may be able to claim costs associated with that, pro rata share of mortgage interest, insurance, and heating costs. For people who earn some or all of their money through their own home business, a pro rata share of house expenses, such as rent, heat, phone and mortgage interest can be deducted from income.

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