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Tax Saving Tips Canada | 15 Secrets The Taxman Doesn't Want You To Know馃捀馃捀 Part I - YouTube
Channel: Thomas C Chan - Financial Services
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Benjamin Franklin once said
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only two things are certain in life: Death and Taxes.
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What are your plans to lower down your taxes?
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So in today鈥檚 video,
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I am going to share some powerful secrets
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that you can reduce your tax paying as easily as possible!
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Hi Everyone, This is Thomas!
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Better Mindset |聽Better Life!
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If you are new here,
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this channel is about financial growth
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and to learn about how money works
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and how you want to work with money in Canada
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So be sure to click the subscribe button with the notification on
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for more money related video like this one!
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I want to share one of my favourite books in my financial journey:
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It鈥檚 called
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15 secrets the taxman doesn鈥檛 want you to know
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by Dwayne Daku
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It focusses on using a non accounting terms
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to provide you with suggestions on how to legally reduce
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the amount of income you have to pay.
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The book was first published back in 2008
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but lots of ideas and concepts can still apply to today鈥檚 world.
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Let鈥檚 jump into it
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Taxes have been the single biggest expense
to Canadian since the 60鈥榮
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According to the Fraser Institute,
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a Canadian research company based in Vancouver,
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an average family needs to pay more than $50,000 in taxes in 2019
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and that鈥檚 45% of the Canadian average household income.
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And not to mention all the housing, clothing,
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food cost has increase tremendously.
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Take gasoline for example:
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35% of the cost goes to tax.
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First, there is the carbon tax,
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which a tax on top of the federal tax.
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Then there is a tax that the provinces charge
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and finally, there is GST of all the other taxes,
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so it鈥檚 a tax on tax and more tax on taxes.
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Even with the ever-increasing taxes,
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Canada is still in a huge deficit.
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To put it in visual.
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If Quebec taxed 100% at all income generated in the province,
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it would take more than 3 years to pay off all the debts
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and fund all the obligation they currently have.
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And also, with the current challenge,
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the government is printing money non stop.
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Guess who needs to pay the bill at the end.
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the author felt that people need tips and direction
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to reduce their tax obligation effectively
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Usually around March or April,
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many people want to file the tax early
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because they are expecting a good tax refund
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and looking forward to spend it.
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Statistics Canada indicates that
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CRA issue about 18 billions in tax refund in 2020,
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an average amount per return is $1800 per head.
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Technically speaking,
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CRA is borrowing a $1800 interest free loan
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from each person every year in Canada.
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let's take a look at what could happen
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if you're simply paid what was due but no more
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and have those extra funds to invest each year
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if you invest $1,800 each year in a tax shelter plan for 30 years
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at a 5% interest rate
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it will give you just under $275,000 as interest
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it also means the 54,000 that you saved up,
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can grow to $325,000 that the government was getting instead of you.
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One of the ways to keep more money in the pocket
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instead of waiting for a tax refund
is to review the withholding tax in the payroll.
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If you are working for someone,
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usually the employer will automatically deduct
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a portion of your pay cheque for taxes.
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So you can ask your employer to adjust
the amount using the Form TD1.
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If there are changes in life鈥檚
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such as spouse or number of dependants,
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credits, tuition, disability and caregiver amounts.
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These amounts give your employer a view into
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how much income tax should be deducted at the source
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and your employer can adjust your tax withholding accordingly.
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If your RRSP, medical, or
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charitable contributions are consistent each year,
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you could contact CRA and get a wavier
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which permits you to reduce your withholding tax
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But please keep in mind,
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do not simply spend all those additional funding.
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You have managed to get along without that extra cash,
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so you should be able to maintain the same lifestyle.
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The purpose is to use those extra money to speed up the saving
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And also, after you might still need to pay tax owning
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even the correct of tax deducted by your employer.
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Reason can be other source income
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such as investment income, or taxable benefits.
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Secret no.2 Turing bad Debts into Good Debts.
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Dwayne define bad debt where you cannot use
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the interest charge as a deduction on your tax return.
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Say John owes $5,000 on his credit card.
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The interest on the credit card debt is not tax deductible
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and its compounding interest
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He also has another $5,000 that he set aside for investment
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and collecting interest and dividend.
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Scenario 1
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he can cash out that $5,000 investment to pay off the credit card.
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Or For tax efficiency,
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He can clear off his credit card with this investment.
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Then go to bank to borrow $5,000 to invest back
into his original investment.
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Through his personal line of credit or from his home line of credit.
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Under line 22100,
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the interest you pay on borrow investment purposes is tax deductible.
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The investment needs to be an income-producing investment,
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Which means it needs to yield interest and dividends.
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If the only earnings in the investment can only produce capital gains,
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you cannot claim the interest you paid
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Some people are further extending this idea
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and apply to their mortgage payment.
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Turning the mortgage interest payment for tax deduction.
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When you are paying down the mortgage,
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the equity in the property increase
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and therefore, you can borrow more in the HELOC.
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Then using the money to invest into an income producing investment,
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which its can be tax deductible
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using the investment return and the extra tax return
to pay down mortgage.
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And repeat until the mortgage is done
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The strategy is called the Smith Manoeuvre,
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feel free to google it for more detail explanation
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But be warned, this strategy is not for everyone.
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There are a lot of risk factors behind it.
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Both in tax and investment liabilities.
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Please talk to the financial professional before implement
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The author pointed out there are lots of ways
to reduce the income tax.
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Each of them can only reduce a little,
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but together they can provide you with significant impact
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There are 3 common ways
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Deduct consultation fees:
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If your tax return is prepared by someone who charges a fee,
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that amount can be a tax deduction.
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Also, any fee paid for investment or financial advice
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can be deducted from the income earn
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Deferred reporting:
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If you have Investments that matures on specific day
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like a term deposit,
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try to schedule it to mature early In January,
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that way you have almost a whole year
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before having to deal the tax on the earning
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Charity Donation:
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Canada has a generous tax credit system for donors to charities.
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For example: Mary in Alberta makes a donation of $700.
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The Federal will give her
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15% for the first $200 and 29% over $200.
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Mary gets $175 in tax credit
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Also, the Provincial give 10% on the first 200
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and 21% after so she gets another $125.
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So when Mary donates 700 in Alberta,
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she gets $300 for her tax credit.
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the net cost for her is $400
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Secret #4 Registered Retirement Saving Plan
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Registered Retirement Saving plan known as the RRSP
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is one of the common tools to deduct taxes.
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Tom makes $100,000 per years
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and say his income tax bracket is at 30%,
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so he needs to pay $30,000 as income tax per year.
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If he contributes $10,000 to rrsp,
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the income drops to $90,000,
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for math purpose, let鈥檚 keep it at 30%,
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the tax he needs to pay is $27,000.
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If Tom does this for every year
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and it grows at a rate of 5% per year,
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after 30 years,
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tom will have $700,000 in this RRSP account.
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In addition, each year Tom have saved $3,000 in taxes,
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so technically speaking,
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the annual $10,000 really only cost Tom $7,000.
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Indeed, compare to TFSA,
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RRSP is a tax deferral plan
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which there is tax to pay when you begin withdrawal.
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But RRSP permits you to reduce your tax now
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and allows the money to compounded growth
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and tax sheltered over the years
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Also, the max you can contribute into TfSA is still $6,000 per year.
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Where RRSP can put up to $26,000 per year.
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2 things that the author point is that
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make sure you name your spouse as beneficiaries
for your RRSP plan
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because RRSP can roll over tax free to your partner
should you pass away.
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If not, the whole amount in the RRSP
becomes your last year income
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and easily 50% of entire plan goes to the CRA pocket.
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The other one is spousal RRSP,
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it鈥檚 design for high income tax bracket family.
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Where one person with high income tax bracket
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contribute to their spouse which has a lower income.
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The main advantage is at the time you withdraw,
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the taxable amount of each could be considerably lower than
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if only one person was taking the full amount.
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This is a way to split income in the future
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and save on the amount of tax that will have to paid.
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Which ever route that you take,
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make plans and do not delay.
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Let time dissolve the tax burden.
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Can you imagine,
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you call the travel agent and just telling them you want to take a trip.
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But not telling them when to leave and return
or How much money you spend and so on.
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Unfortunately,
that is the way many people plan their financial lives.
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let me know if you want to know more about this book
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or what did you learn something today!
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I will put all the links down below in the description box
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including where you can buy this book
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This is Thomas!
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If you want to learn how money works
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and how you want to work with money,
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then I will see you in the next video!
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