How Can I Reduce My Tax Bill?

As you can imagine, this is one of the top three questions that we are asked every tax season. This is why we decided to give you the clearest possible answer to the question. Below is a summary of tips to help you reduce your tax bill.

Contribute to a Registered Retirement Savings Plan (RRSP)

Contributing to an RRSP is an excellent way to reduce your tax bill. The amounts that you invest in an RRSP are deducted from your taxable income. Essentially, the more you contribute, the more you save on taxes.

The benefits of contributing to an RRSP:

1. Building retirement funds. Contributing to your RRSP helps you to save for retirement.

2. Buying a home. Take advantage of the Home Buyer’s Plan (HBP). Under the HBP, you can withdraw up to $60,000 from your RRSP to buy or build an eligible home for yourself or a related person with a disability without having to pay tax on the withdrawal.

3. Education. Take advantage of the Lifelong Learning Plan (LLP). This program allows you to withdraw up to $10,000 from your RRSP per calendar year up to a total of $20,000 to cover the cost of full-time studies for yourself or your spouse. For more information, visit the Canada Revenue Agency (CRA) website.

Please note that:

• What you save today will be taxable when you withdraw it;
• The age limit for contributing to your RRSP is 71;
• You have a maximum contribution limit. This information is shown in the notice of assessment that you received from the CRA after filing your income tax return for the previous year. Click here to find out more about RRSPs.

You’re entitled to claim your medical expenses!

You can claim a tax credit for medical expenses that you paid during the year and were not reimbursed. This includes health insurance premiums paid to an insurer.

Examples of medical expenses include payments to a dentist, optometrist, psychologist or other healthcare professional.

Examples of medical expenses: expenses incurred for a dentist, optometrist, psychologist or other health care professional.

Who can claim these expenses?

Any individual who paid medical expenses for themself, their spouse or a dependant can claim this tax credit. Generally speaking, the spouse with the lower income should claim this credit. Keep your receipts and submit them with your income tax return. You can also ask your pharmacist for a summary of the amounts paid during the year.

Please note that:

• Medical expenses that are not reimbursed by your insurer are deductible to the extent of 3% or $2,759, whichever is lower, so you should keep receipts and documentation for your medical expenses;
• Massage therapy and purely cosmetic treatments are not eligible, except in cases where the procedure is due to a congenital problem or reconstruction following an illness or accident. Click here to find out more about medical expenses

The First-Time Home Buyers’ Tax Credit

You can claim up to $10,000 for the purchase of a qualifying first home for the year that the home was acquired.

Conditions:

• In the acquisition year or any of the four previous years, you did not live in another home in Canada or abroad that was owned by you or your spouse;
• The residence must have been acquired with the intention of making it your principal residence no later than one year after its acquisition.

Please note that:

• You do not have to be a first-time home buyer if either:
  • You are eligible for the disability tax credit;
  • You acquired the home for the benefit of a related person who is eligible for the disability tax credit.

Click here to find out more about the First-Time Home Buyers’ Tax Credit.

Tax credit for moving expenses

Conditions:   

• You must have moved to hold a job or attend an educational institution within Canada;
• You moved at least 40 kilometres closer to your place of study or new place of work

You can claim most of the usual moving expenses such as movers, truck rental, transportation costs, storage, lease termination fees, accommodation and broker fees. Click here to find out more about the tax credit for moving expenses.

The tax credit for children’s activities

This credit is available on a provincial level only. You can claim a refundable tax credit for children’s activities equal to 20% of the eligible registration or membership fees. You could obtain a maximum tax credit of $100 per child.

The tax credit for childcare expenses

You can claim a tax credit for childcare expenses that you paid for an “eligible child” while you were carrying out one of the following activities:

• Carrying out the duties of employment;
• Carrying on a business;
• Receiving benefits under the Québec parental insurance plan (QPIP);
• Studying full-time or part-time at a secondary school, college or university.

On a federal level, childcare expenses must be claimed by the lower-income earner (including an income of zero). Click here to find out how to benefit from the tax credit for childcare expenses throughout the year.

Make charitable donations

If you or your spouse make a charitable donation to a registered charity, you could be entitled to receive a federal, provincial or territorial non-refundable tax credit.

Donations can be made to hospital centres, churches and any other organization recognized by the CRA. Click here to view the list of charities and other qualified donees.

IMPORTANT

Make sure that you receive an official receipt which shows the organization’s name, the amount donated and the date. Making a donation can pay off because the more you donate, the more you can reduce your tax bill.

One final tip

Increase your source deductions by filling out the Request to Have Additional Income Tax Withheld at Source form. For further information, please contact your employer.

In conclusion, there are many ways to reduce your tax bill. If you’d like to find out more, contact our experts. They can help you maximize the tax credits you might be entitled to.