Personal Tax

Practical Tips to Pay Less Tax in Canada

Paul Sharpe, CPA, CA
/
February 7, 2024

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Tips for saving tax in Canada. Avalon's definitive list of tips to help Canadians save more tax and receive more benefits.

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How to Pay Less Tax

Here is Avalon’s definitive list of practical tips to help you pay less tax.

We’ve curated the best ways for Canadians to save, and you’re about to get the complete rundown.

Alright, let’s get into it!

Detailed Tax Saving Checklist

To keep this from being 20 pages long, we’ll start with general awareness for each tax saving method.

It's broken up into sections so you can read it all or use the table of contents above to jump to topics that are more relevant to you.

And if want more info on how to use these tips, we’ve also created a comprehensive tax-saving checklist that includes further details. 

Want to reduce your taxes this year? 

Click the button below to grab your free tax saving checklist.

General Tax Management

We’re going to start off with the simplest tax saving tips before we move up the ladder of complexity.

These first couple of tips might be simple, but unfortunately, not very many Canadians actually follow them!

Get Informed About Taxes

Our first tip is to get informed about taxes.

Congratulations, you’re already doing it!

Without understanding the basics and getting some general awareness of how taxes work, you might as well have a hole in your wallet. 

Ignorance might be bliss, but it also means wasting a bunch of money.

Nice work!  You’re already taking the time to learn and are on the path to tax savings.

File and Pay Your Taxes On Time

Our second simple tip is also one that’s often overlooked.

According to a 2019 H&R Block survey, up to 40% of Canadians aren’t filing their taxes on time.

That’s a lot of potential interest and penalties paid unnecessarily. 

So file and pay your taxes on time to avoid costly penalties and interest.

Deadline for Self-employed Individuals

Tax returns for self-employed individuals must be FILED by June 15th each year, or the next business day if June 15th falls on a weekend.

However any taxes owing for self-employed individuals must be PAID by April 30th, orr the next business day if April 30th falls on a weekend.

Deadline if Not Self-Employed

For those of us who are not self-employed, tax filing and payment are both due on April 30th, or the next business day if April 30th falls on a weekend.

We’ve also written in more detail about tax deadlines, so check it out if you want the full rundown.

Home and Every-day Living Costs

Alright, moving on from our general tax management tips, let's focus on something that can directly impact many of our lives - family and home benefits. 

The government offers several incentives designed to help Canadians manage the costs associated with their homes and every-day living. 

Claim the GST/HST Credit

One of the most straightforward benefits for families is the GST/HST credit. This credit is designed to help offset the GST or HST you pay throughout the year. 

It's particularly beneficial for families with children, offering a quarterly payment that can help with everyday expenses. 

Single people can receive up to $496; married or common-law couples can receive up to $650.

To be eligible for this credit, you need to 

  • Be at least 19 years old,
  • Be a Canadian resident, and 
  • File your taxes on time. 

The amount you’ll receive is based on your “adjusted family net income” which just means that the more you earn, the less GST/HST credit you’ll receive.

The Ontario Trillium Benefit

Next up, for those living in Ontario, there's the Ontario Trillium Benefit. 

This combines several credits into one to assist with energy costs, sales tax, and property taxes. 

Eligibility is based on your family’s net income, so it pays to know where you stand.

The First-Time Home Buyers' Tax Credit

And for those who’ve recently stepped into the world of homeownership, the First-Time Home Buyers' Tax Credit is something you shouldn’t overlook. 

If you bought your home this year, you might be eligible for a credit that can help offset some of the costs associated with purchasing a new home. 

It’s a great way to get some money back after making such a significant investment.

The Home Accessibility Tax Credit (HATC) 

Next up, if you’ve spent money making your home more accessible for seniors, or those with disabilities, the Home Accessibility Tax Credit or HATC is something you should look into. 

This credit can be applied to a wide range of renovations, from installing grab bars in the bathroom to ramps for wheelchair access. 

If you’ve taken efforts to make your home safer and more accessible, you may be able to get some financial relief for doing so.

The Multigenerational Home Renovation Tax Credit (MHRTC)

The Multigenerational Home Renovation Tax Credit, or MHRTC, acknowledges the growing trend of multigenerational living. It offers a financial incentive to those adapting their homes to this lifestyle. 

If you’re creating a self-contained living space for an elderly parent or a family member with a disability, this credit can significantly offset the costs. 

You can claim eligible renovation expenses for tax savings of up to $7,500.

Supporting Family and Children

Next up in our tax-saving journey, let's zero in on the benefits and deductions specifically tailored to support families and children. 

These tips can make a significant difference to your bank balance, especially if you're managing the costs of raising a family.

Deduct Medical Expenses

Healthcare costs can add up, especially those not covered by MSP. That’s where deducting medical expenses comes into play. 

From dental work to prescriptions not covered by your health plan, these expenses can be claimed to reduce your taxes payable. 

Deducting medical expenses can lead to significant savings, particularly for families managing chronic conditions or unexpected healthcare costs.

Deduct Child Care Expenses

For many families, child care is a significant expense. Fortunately, the CRA allows you to deduct child care expenses, such as daycare or nanny services, enabling you to work, run a business, or attend school. 

This deduction can include a variety of care options, from after-school programs to summer camps, provided they're primarily for childcare. 

The key is that the expenses must be necessary for you to earn income, and there are limits based on the child's age and the type of care. 

Claiming this deduction can significantly reduce your taxes owing, making it easier for your family budget to breathe.

The Canada Child Benefit (CCB)

The Canada Child Benefit, or CCB, is a tax-free monthly payment made to eligible families aimed at helping with the cost of raising children. 

The amount you receive depends on your family income and the number of children that you have. Applying for and maximizing the CCB can provide needed financial support throughout the year. 

It's adjusted annually to keep pace with inflation, so it's crucial to file your taxes annually to continue receiving the benefit without interruption.

Child Disability Benefit (CDB)

For families caring for a child under 18 with a severe and prolonged impairment, the Child Disability Benefit offers additional support. 

This tax-free benefit is paid monthly along with the CCB and aims to help cover some of the extra costs of raising a child with a disability. 

Eligibility hinges on the child being approved for the Disability Tax Credit, emphasizing the importance of applying for and maintaining this certification. 

The amount you can receive will be determined by family income.

So, again, we find that on-time tax filing is a critical component for maximizing tax benefits.

Claim the Canada Caregiver Credit

For those caring for a dependent with a physical or mental impairment, the Canada Caregiver Credit offers a way to reduce your tax bill. 

This credit is designed to help alleviate the financial burden that caregivers often face. 

It's important to understand the eligibility criteria and you may be required to obtain documentation of the impairment. This could come in the form of a signed document from a healthcare professional.

Explore this credit to find out how it can provide financial respite for the support that you offer. 

Investment and Savings Accounts

Next, let's shift our focus to where investing and saving meets tax efficiency. We’re talking about investment and savings accounts you can use. 

Whether you're saving for retirement, your first home, or your child's education, understanding these accounts is key to maximizing your money’s potential.

Retirement Savings Plan (RRSP)

The Registered Retirement Savings Plan, or RRSP, is a cornerstone of retirement planning in Canada. 

Contributions to your RRSP are tax-deductible, lowering your taxable income for the year you contribute. 

Then, the investments held in your RRSP grow tax-deferred until you withdraw them in retirement, when you are potentially taxed at a lower rate. 

It's a powerful tool for building your retirement nest egg while reducing your tax bill today.

You can also find our full guide on RRSPs linked here.

Tax-Free Savings Accounts (TFSAs)

The Tax-Free Savings Account, better known as TFSA, offers a flexible way to save and invest with a unique tax advantage. 

Unlike RRSPs, contributions to a TFSA aren't tax-deductible, but the growth and withdrawals are tax-free. 

This makes TFSAs an excellent option for saving for short-term and long-term goals.

They can be used for anything from emergency funds to retirement savings, without worrying about tax implications on your investment gains.

To learn more, check out our guide on how TFSAs compare to RRSPs.

First Home Savings Account (FHSA)

Introduced as a way to support first-time homebuyers, the First Home Savings Account, or FHSA, combines the benefits of RRSPs and TFSAs. 

Contributions are tax-deductible, like an RRSP, while withdrawals made to purchase your first home are tax-free, like a TFSA. 

It's an innovative account designed to make home-ownership more accessible for Canadians. 

Using an FHSA can provide a tax-efficient way to save for that significant first home purchase.

We again have a full guide on FHSAs that you can read for more information.

Registered Education Savings Plan (RESP)

Saving for your child's education is a long-term commitment, and the Registered Education Savings Plan, or RESP, is designed to help with this goal. 

Contributions to an RESP aren't tax-deductible, but the investment growth and government grants it can receive are tax-deferred until withdrawn. 

When the funds are used for your child's post-secondary education, they're taxed in the student's hands, typically at a much lower rate. 

Plus, the Canada Education Savings Grant will match up to 20% on the first $2,500 of annual contributions. This lets you maximize the growth potential of your savings.

Education and Training

Moving on to tax saving tips specifically relating to education and training. 

Investing in yourself or your family's education is a pathway to personal growth and better job prospects. 

And thanks to some handy government incentives, it can also offer significant tax advantages. 

Let’s explore how you can make education more affordable through smart tax planning.

The Canada Training Credit

The Canada Training Credit is a relatively new addition to the tax code, aimed at helping Canadians offset the cost of professional development. 

If you've taken courses or professional development programs this year, you might be eligible for this tax credit. 

It’s designed to encourage continuous learning and skills development, allowing you to claim a portion of your tuition fees against your tax payable. 

This credit also accumulates over time, giving you a larger potential deduction as you continue to invest in your education.

The Tuition Tax Credit

For students or those supporting students, the Tuition Tax Credit is another helpful tool for managing education costs. 

This non-refundable credit allows you to deduct tuition fees paid for post-secondary education, reducing the amount of tax you owe. You can claim amounts paid on behalf of yourself, your spouse or your children.

This credit covers a wide range of educational institutions and programs, making it a flexible option for students pursuing diverse paths. 

If you can’t use this credit in the year that the tuition was paid, unused amounts can also be carried forward to be applied against income in future years.

Student Loan Interest

The cost of education often extends beyond graduation, in the form of student loans. 

Fortunately, the interest you pay on government-approved student loans is eligible for a tax deduction. 

This deduction can be claimed for the interest paid during the tax year and any interest paid over the past five years that hasn't already been claimed. 

It's a commonly-missed deduction that can reduce your taxable income and help manage the financial burden of student loans. 

Miscellaneous Credits and Deductions

As we get further into our tax-saving strategies, we encounter a variety of miscellaneous credits and deductions that can benefit Canadians in different ways. 

These are often overlooked opportunities that can provide relief in areas you might not have considered. 

And to avoid saying it over and over, here’s your quick reminder that details for all of these can be found in the checklist linked below.

Charitable Donations

Our first miscellaneous tip is pretty common so might be more of a reminder for you.

And it’s a win-win opportunity we’re talking about here; donating to charity not only supports good causes but also offers tax benefits. 

The Charitable Donation Tax Credit allows you to claim a significant portion of your donations when you file your taxes. This can be an effective way to reduce your taxable income while contributing to your community. 

The more you give, the more you can claim, but always ensure you’re donating to registered charities to qualify for the credit.

Keep your charitable donation slips organized so you can refer back to them when filing your taxes. I just tag my receipt emails in my inbox so they’re all in one place and easy to find.

The Digital News Subscription Tax Credit

Next we have a less commonly known tax credit - the digital news subscription tax credit.

In an era where staying informed is more important than ever, this tax credit serves as an incentive for Canadians to subscribe to digital news. 

It allows you to claim a portion of the costs for subscribing to eligible Canadian digital news media. 

You’ll be supporting Canadian journalism and reducing your tax payable at the same time - nice!

If you've subscribed to any qualifying digital news outlets this year, make sure to claim this credit.

Alright, moving on!

Claim Moving Expenses

Speaking of moving, if you've moved more than 40 kilometers closer to a new job, business location, or educational institution, you may be eligible to deduct your moving expenses. 

This can include transportation, storage costs, and even temporary lodging. 

This deduction is particularly beneficial for those who find themselves frequently relocating for work or school. 

Keeping detailed records of your moving expenses is helpful when making this claim on your tax return.

Deduct eligible Work from Home Expenses

The shift towards remote work has made the Work from Home Expenses deduction more relevant than ever. 

If you've worked from home this year and incurred expenses that weren’t reimbursed by your employer, you could claim a portion of these costs. 

This may include internet fees, office supplies, and a portion of your home utilities. 

The CRA has also provided simplified methods for claiming these expenses, making it easier for eligible Canadians to take advantage of this deduction.

Claiming Investment Losses

And lastly in our miscellaneous section let’s talk about investment losses.

For the savvy investor, recognizing and claiming investment losses can be a strategic move to offset capital gains.

If you've sold investments at a loss, you can use these losses to reduce any capital gains you've realized in the same year. 

In addition, unused losses can be carried back three years or carried forward indefinitely, providing a potential tax advantage in future years. 

If you sell an investment at a loss, take note and consult the tax checklist for details on how to use those losses to reduce your tax bill.

Civic Engagement and Special Situations

Diving into our last category, we’ll be touching on Civic Engagement and Special Situations. 

This includes unique tax-saving strategies that cater to specific situations or actions you've taken throughout the year. 

The Climate Action Incentive

Residents of certain provinces can save tax by claiming the Climate Action Incentive, a credit designed to offset the cost of the federal pollution pricing. 

If you live in Alberta, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, PEI or Saskatchewan, you may be eligible for this benefit.

To receive this benefit, residents in eligible provinces just need to file their income tax return on-time.

The Climate Action Incentive is then automatically paid out quarterly as long as your tax returns are up to date.

Political Contribution Tax Credits

Supporting your political party not only contributes to your civic duty but also offers a tax advantage. 

There are both Federal and Provincial Political Contribution Tax Credits that allow you to claim a portion of your donations to registered political parties.

It's an incentive for individuals to participate more actively in Canada's political landscape while enjoying some financial benefits.

Disability Tax Credit

The Disability Tax Credit, or DTC, is a valuable credit for those with severe and prolonged impairments. 

It reduces the amount of income tax that they need to pay. 

If you or a dependent qualify, it's crucial to apply for, and claim this credit. 

It can lead to substantial tax savings and is a cornerstone for accessing other disability-related benefits and programs.

If you were eligible for the Disability Tax Credit in the past but didn't claim it, you still have an opportunity. You can request to adjust your tax returns and claim the DTC for up to ten years retroactively.

Claim Other Employment Expenses

And lastly, let’s look at claiming employment expenses.

Some employees who are required to incur expenses for their job may be able to claim them as deductions against their income, 

For example, this could include home office supplies or travel costs not reimbursed by their employer. 

To claim employment expenses, you'll need proper documentation and potentially a signed T2200 form from your employer. 

It’s not for all employees, but it’s still a useful deduction for those who spend out of pocket to perform their job duties.

Final Thoughts

Alright, that does it for our practical tips for paying less tax.

Don’t forget to grab your tax saving checklist to help you make the most out of this information.

Thanks for reading!

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Article by
Paul Sharpe, CPA, CA
.
Originally published
February 7, 2024
.
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