Tips for Personal Income Tax Planning
It’s no secret that tax can be pretty pervasive and complicated — personal taxes perhaps the most of all. It can be daunting to try and understand all these challenges let alone conquer them, luckily Canada’s tax system offers a range of opportunities for you to realize savings. The key is to know where to find them and which are available to you. Below you will find just a few major incentives that the Canada Revenue Agency offers that will allow you to maximize your returns and build the best future outcome for you and your family financially.
Make RRSP contributions
You might be telling yourself, it’s too early to start saving for my retirement, well you couldn’t be more wrong. Just remember, compounding interest is your friend. Contributing to a Registered Retirement Savings Plan (RRSP) is tax deductible therefore you will immediately receive tax deductions because of it. Your 2021 RRSP deduction will be limited to 18% of the income you earned the previous year, up to a maximum of $27,830. It may not seem intuitive but make sure to start contributing as early as possible to maximize growth.
Make TFSA contributions
Similar to RRSP, Tax-Free Savings Accounts (TFSA) provide a way to earn money without tax intervention. A TFSA will allow your money to grow tax free, creating a means to avoid paying taxes on any gains made within the account. The TFSA yearly deposit limit is $6,000 but if you have been at least 18 years old and resident in Canada since 2009, a maximum of $75,500 can be deposited without consequence in 2021 as long as you haven’t contributed to a TFSA up until this point.
Make RESP contributions
As they say, it’s never too early to start saving for your child’s education. A Registered Education Savings Plan (RESP) will allow for tax efficient savings for your child’s post-secondary education. Sponsored by the Canadian government to encourage tax free contributions to your child’s post secondary education. The federal government will also contribute a certain amount through their Canada Education Savings Grant (CESG) for children under the age of 18.
Pay interest on student loans
Saving for post-secondary isn’t the only way you can save tax dollars on your post-secondary education. You can claim a non-refundable tax credit for the amount of interest paid on student loans received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Apprentice Loans Act or a similar provincial or territorial government law. Note that while only the student can claim the student loan interest credit, the interest on the loan itself can be paid either by the student or by someone related to the student, such as a parent or guardian.
Pay family medical expenses
Although all tax incentives are designed to help as many people as possible, some have a more tragic means of implementation. Medical expenses for example have a tax credit that may be claimed when total eligible medical expenses exceed the lower of 3% of your net income. For medical expenses, it may be worthwhile to look for unclaimed expenses prior to this year as well. The medical expense tax credit (METC) may be claimed for eligible medical expenses that were paid during any 12-month period that ended within the calendar year.
Make charitable donations
It never hurts to make a donation or two to your favourite charity throughout the year. It especially helps that both the federal and provincial governments offer donations tax credits that, in combination, can result in tax savings of up to 54% of the value of your gift, depending on your province or territory of residence. Provincial donation credits are also available and the total credit may be up to 54% once total annual donations exceed the $200 in a calendar year. Keep in mind that many charities offer online, internet donations where an electronic tax receipt is generated and emailed to you instantly. Adding charitable donations to your yearly routine does goes a long way to both improving your community and generating a great tax advantage for you when tax season comes around.
Make renovations for home accessibility
A more specific scenario but often overlooked by those who can use it more. The non-refundable Home Accessibility Tax Credit (HATC) assists seniors and those eligible for the disability tax credit with certain home renovations. The tax credit is equal to 15% of up to $10,000 of expenses per year towards renovations that permit these individuals to gain access to, or to be more mobile or functional within, their home, or reduce their risk of harm within their home or from entering their home. A single expenditure may qualify for both the HATC and the medical expense tax credit, and both may be claimed.
Now that we have created a few areas within your financial portfolio where you can maximize your money and ensure you make the best of your yearly tax returns. It is important to find to keep up to date with any new incentives that have been introduced. With access to Bullseye Accounting’s 4 decades of professional tax consulting experience, let us take these stresses out of learning and applying these new tax incentives to your family’s income. Access your free consultation here and we will ensure you get the most of your tax return this year!