Brief Summary
This video provides a comprehensive guide to tax savings strategies for Canadians, focusing on investments, income splitting, deductions, retirement, and self-employment. Key strategies include utilizing registered accounts like TFSAs and RRSPs, income splitting through FHSA contributions and pension sharing, maximizing tax deductions and credits, optimizing retirement income through RRIF withdrawals and TFSA usage, and claiming business expenses for self-employed individuals.
- Utilize registered accounts like TFSAs and RRSPs for tax-advantaged growth.
- Implement income splitting strategies to balance taxable income between spouses.
- Maximize available tax deductions and credits to reduce your tax bill.
- Optimize retirement income through strategic withdrawals and tax credits.
- Claim all eligible business expenses if self-employed to lower taxable income.
The video introduces the concept of tax savings for Canadians, addressing the common frustration of high taxes. It outlines five key areas to focus on for maximizing tax savings: investments, income splitting, deductions and credits, retirement tax strategies, and self-employment tax planning. The video promises to guide viewers through these categories to help them keep more of their earnings.
This section emphasizes the importance of registered accounts like TFSAs and RRSPs for investment. It illustrates the difference these accounts can make using an example of Mark, who invests in a TFSA, RRSP, and a non-registered account. The TFSA provides 45% more value, while the RRSP nearly doubles the value of the non-registered account due to tax-free or tax-deferred growth. The introduction of the FHSA as a powerful wealth-building tool for first-time home buyers is also mentioned.
This part of the video explains how registered accounts like TFSAs and RRSPs can significantly impact wealth accumulation over time. It uses the example of Mark, a 30-year-old with $30,000 to invest, splitting it evenly between a TFSA, RRSP, and a non-registered account. After 30 years, the tax-advantaged accounts (TFSA and RRSP) substantially outperform the non-registered account due to tax-free or tax-deferred growth.
The video discusses how to optimize investment choices within different account types to minimize taxes and maximize returns. For TFSAs, it recommends avoiding U.S. dividend stocks and ETFs due to withholding taxes, suggesting Canadian or non-dividend paying international stocks instead. RRSPs are ideal for income-heavy assets like U.S. dividend stocks and ETFs, as there's no withholding tax. Non-registered accounts are best for investments with favorable tax treatment, such as Canadian dividend stocks benefiting from the dividend tax credit, or non-dividend paying stocks like Berkshire Hathaway, where growth comes from capital gains.
This section introduces income splitting as a strategy to balance income between spouses, allowing couples to take advantage of lower tax brackets and save money. It describes income splitting as shifting income from a higher-income partner to a lower-income partner to balance the tax load. Several methods for income splitting are discussed, including using an FHSA, splitting pension income, spousal RRSP contributions, CPP income splitting, and splitting capital losses.
The video explains how the FHSA can be used for income splitting. The higher-income partner gifts money to the lower-income partner, who then contributes to their FHSA, gaining a tax deduction and tax-free investment growth. This strategy offers immediate tax savings, tax-free growth, and flexibility to roll the FHSA into an RRSP if not used for a home. It is most effective when the higher-income partner has already maxed out their registered accounts.
This part of the video discusses how shifting pension income to a lower-income spouse can balance taxable income and reduce household taxes. Before age 65, only defined benefit pension plans qualify, but after 65, defined contribution pension plans, RRIFs, and LIFs also qualify. By allocating a portion of pension income to a spouse in a lower tax bracket, the overall household tax burden can be reduced.
Spousal RRSPs allow a higher-income partner to contribute to the lower-income spouse's RRSP, deferring taxes and balancing retirement income. The higher-income partner reduces their taxable income, and when the lower-income spouse withdraws the funds in retirement at a lower tax rate, the couple saves on taxes overall. It's important to avoid early withdrawals within 3 years of the contribution to prevent attribution back to the contributing spouse.
Couples receiving CPP benefits can split up to 50% of their benefits, which can lower their overall tax bill. By shifting a portion of CPP income to the spouse in a lower tax bracket, the couple can take advantage of lower tax rates and reduce their combined tax liability.
This section explains how to offset one spouse's capital gains with the other's capital losses using superficial loss rules. This strategy applies to non-registered accounts and must comply with CRA rules for timing and holding periods. By offsetting capital gains with losses, couples can reduce their overall tax burden.
The video transitions to the third major category: maximizing deductions and tax credits. It describes deductions and tax credits as "hidden treasures" that directly reduce your tax bill or taxable income. Knowing which ones to claim can lead to significant savings.
Eligible childcare expenses can be deducted, lowering taxable income. For children under 7, up to $8,000 per child can be claimed annually, and for children aged 7 to 16, up to $5,000 can be claimed.
If you relocate at least 40 km closer to a new job or school, you can deduct moving expenses. Eligible expenses include transportation, storage, and temporary living costs.
Medical expenses exceeding the lesser of 3% of your net income or a set threshold can be claimed. The video provides an example to illustrate how claiming medical expenses can result in tax savings.
This section focuses on tax strategies for retirement, emphasizing that tax planning doesn't stop once you retire. How you withdraw and manage your retirement income can significantly impact your overall taxes paid.
Mandatory RRIF withdrawals can push you into a higher tax bracket. Using your younger spouse's age to calculate RRIF minimums allows you to withdraw less each year, keeping taxable income lower for longer.
Retirees can lower their tax bills with credits like the age amount credit and the pension income credit. Canadians aged 65 or older can claim an additional amount as a non-refundable tax credit, though this credit phases out at higher income levels. Up to $2,000 of eligible pension income can be claimed, offering a federal tax credit of 15%.
Strategic use of TFSAs and RRSPs in retirement can manage taxable income and preserve government benefits. TFSA withdrawals are tax-free, making them an ideal supplement to RRSP withdrawals to avoid higher tax brackets. Excess RRSP withdrawals can be shifted to your TFSA, reducing future RRIF withdrawals and providing tax-free growth.
Permanent life insurance policies, such as whole or universal life, offer tax-efficient ways to transfer wealth. Policyholders can grow investments within the policy tax-free and leave a tax-free death benefit to beneficiaries. This is especially effective because your entire estate is deemed disposed of upon passing, and shifting some RSP savings into a life insurance policy can transfer that value to beneficiaries tax-free.
The video transitions to tax strategies for self-employed business owners, noting that self-employment offers unique tax-saving opportunities.
Many business expenses are tax-deductible, including office supplies, marketing, business travel, and professional fees. Claiming these expenses can significantly reduce your taxable income.
If you work from home, you can claim a percentage of your household expenses, like rent, utilities, and property taxes, based on the space used for business.
If a spouse or family member helps with your business, you can pay them a reasonable salary for their contributions. This shifts income to someone in a lower tax bracket, saving your family money overall. It's crucial for the salary to be reasonable, as the CRA is strict on this rule.
Transcript
Full transcript of “How to PAY LESS TAXES in Canada: 5 Proven Tax Strategies”. Click a timestamp to open the video at that moment. Need another video? Use the YouTube transcript generator.
0:00 as Canadians we love to hate two things freezing Winters and paying way too much in taxes which can reach over 50% in the highest tax brackets while I can't do much about the freezing Winters I can help you save on taxes in this video I'll walk you through the five key categories we focus on with our clients to maximize their tax savings which are saving taxes on investments income splitting maximizing tax deduction and credits retirement tax strategy IES and self-employed tax planning let's start with saving money on investments registered accounts you've probably heard people say you should invest in a tfsa or RSP but do you really know how much of a difference these accounts can make for your wealth over time let's
0:45 break it down with a fun example meet Mark a 30-year-old who has $330,000 to invest before attacks he splits it evenly between a tfsa RSP and a non-registered account so $10,000 in each account over 30 years with a 7% annual return his Investments grow until the age of 60 with the 40% tax rate while working and a 20% tax rate in retirement how will each account compare at the end of 30 years let's find out in his tfsa Mark pays the 40% tax UPF front leaving $6,000 to invest after 30 years of taxfree growth his tfsa is worth $4,733 with no tax on withdrawals for his RSP Mark invest the full $10,000
1:31 tax-free upfront after 30 years his account grows to $ 76,120,000 similar to the tfsa his annual taxes on returns shrink his growth leaving him with $31,385 after 30 years the main takeaway from this is tax tax advantaged accounts like the tfsa and RSP significantly outpaced a non-registered taxable account the tfsa provides 45% more while this RSP nearly doubles the value thanks to tax-free or tax deferred growth for first-time home buyers the new fhsa combines the tax benefits of a
2:19 tfsa and an RSP offering even more powerful wealth building potential tax efficient investment choices for each account knowing what to invest in each account is just as important as contributing here's how to minimize taxes and maximize returns so here are the key insights with your tfsa it's a Powerhouse for taxfree compounding but it needs careful planning avoid us dividend stocks and ETFs as the 15% withholding tax does cut into your returns stick with Canadian or non-dividend paying International stocks or ETFs instead for your rsps they're fantastic for deferring taxes on income heavy assets they're also the best best place for us dividend stocks and ETFs since there's no withholding tax here just remember though withdrawals are tax
3:05 as regular income so plan strategically especially as Retirement approaches and then you have your non-registered accounts these accounts are flexible but the least tax efficient they work best for Investments with favorable tax treatment such as Canadian dividend stocks because it benefits from the dividend tax credit you should also consider non-dividend paying stocks like Warren Buffett's birkshire hathway where growth comes from capital gains instead of taxable dividends deferring taxes until you sell avoid interest heavy Investments like bonds or gic's as they are fully taxed at your marginal rate making them much less suitable for non-registered accounts there are many other tax advantaged accounts beyond the tfsa and RSP such as the RP and others I covered these in much greater detail in
3:51 another video where I discussed the ideal investment order in Canada so be sure to check that out now the second major category is pay less taxes by income splitting income splitting is like sharing an umbrella in the rain both Partners stay drier while balancing the load by shifting income from a higher income partner to a lower income partner couples can take advantage of lower tax brackets and save thousands the first example of this would be to use your fhsa now this strategy has been flying under the radar likely because the fhsa is still so new you might be wondering wait isn't the fhsa just for saving for a home how could it possibly help with income splitting well let me break it down for you how it works the high income partner gifts money to the low-income partner who contributes to their fhsa avoiding taxable Investments
4:38 and gaining a tax deduction so for an example Jerry gives $88,000 to Elaine Elaine contributes it to her fhsa gets a $2,400 tax deduction and they save $2,532 in total taxes because those Investments grow taxfree in the fhsa why it's effective is it has immediate tax savings taxfree growth and flexibility to roll it into an RSP if the fhsa isn't used for a home it works best if the higher income partner has already maxed out their registered accounts splitting pension income shifting pension income to a lower income spouse helps balance taxable income and reduces household taxes there are some special rules for eligibility though before the age of 65 only defined benefit pension plans otherwise known as dbps qualified but
5:26 after the age of 65 theine contribution pension plans and riffs and lifts qualify as well so for an example Jerry earns $40,000 from his pension taxed at 30% by allocating $20,000 of it to Elaine with a 15% tax they reduce household taxes from $122,000 to $99,000 saving $33,000 spel RSP contributions spel rsps allow the higher income partner to contribute to the lower income spouses account deferring taxes and balancing retirement income so in this case Jerry contributes $12,000 to a Lane's RSP reducing his taxable income by $4,200 when a lane withdraws the funds at a 20% tax rate they save $1,800 in total and here's a pro tip avoid
6:11 early withdrawals within 3 years of contribution to rent attribution back to the contributing spous CPP income splitting couples receiving CPP can split up to 50% of their benefits lowering their overall tax bill so here's an example Jerry shifts $3,000 of his CPP income to Lane saving $450 in taxes by taking advantage of her lower tax bracket next is splitting Capital losses offset one spouse's capital gains with the other's Capital losses using superficial loss rules in this example Jerry has a $4,000 Capital loss early in the year when he sold some stock which offsets Elaine's $155,000 gain saving $800 in taxes here's a pro tip this only applies to non-registered accounts and
6:56 it must meet compliance with CRA rules for timing and holding periods so be very mindful of that to explore these income splitting strategies further visit our website and get a free copy of our guide income splitting for Canadians delivered straight to your inbox the link is in the description the third major category is maximizing deductions and tax credits deductions and tax credits are like finding Hidden Treasures in your tax return they directly reduce your tax bill or taxable income putting more money back in your pocket knowing which ones to claim can be kind of tricky but can also lead to significant SA saving let's start with child care expenses you can deduct eligible child care expenses which lowers your taxable income for children under 7even you can claim up to $7,997 per child annually and for children age 7 to6 up to
7:44 $674 moving expenses if you relocate at least 40 km closer to a new job or school you can deduct moving expenses eligible expenses include things like Transportation storage and temporary living costs for instance if you have $10,000 in moving expenses and are in a 30 % tax bracket you could save $33,000 in taxes medical expenses you could claim medical expenses which exceed the Lesser 3% of your net income or a set threshold for 2025 this threshold is $2,833 if your net income is $60,000 3% is $1,800 so any expenses over this amount are eligible if you have $5,000 in medical expenses for example you could claim $3,200 here with a 15% federal tax credit rate this results in $480 in tax savings there are a ton of
8:30 tax credits and deductions available here's a list of a lot of them you can pause it to see if any of them apply to you and do research on if you can claim it yourself via the CRA website here the fourth major category is saving taxes in retirement once you retire you can't just stop planning for taxes how you withdraw and manage it can make a big difference in overall taxes paid and here are some effective strategies to pay less taxes firsts is rift withdrawal strategies to minimize tax income mandatory Rift withdrawals can push you into a higher tax bracket using your younger spouses age though to calculate Rift minimums allow you to withdraw less each year keeping taxable income lower for longer so here's an example if Sarah is 70 and her spose is 65 using her sp's age for Rift calculations reduces the
9:16 minimum withdrawal amount helping Sarah stay in a lower tax bracket and avoid OAS clawback tax credits for retirees retirees can significantly lower their tax bills with these credits specific for retirees with which is the age amount credit Canadians age 65 or older can claim an additional $928 as a non-refundable tax credit however this credit begins to phase out for incomes exceeding $443 35 and it phases out entirely at higher income levels so it's something you might want to tax plan around then you have your pension income credit up to $2,000 of eligible pension income can be claimed offering a federal tax credit of 15% this credit is applicable to income sources such as Rift withdrawals or employer pensions but does not cover CPP or OAS so for an example meet marar
10:04 who's age 67 she has a taxable income of $40,000 by claiming the age amount credit of $928 and the pension income credit of $2,000 her taxable income is reduced by $1,028 tfsa and RSP optimization in retirement strategic use of your tfsas and RSP in retirement can really help manage taxable income and preserve government benefits one way to do this is to use tfsa withdrawals to avoid higher tax brackets tfsa withdrawals are tax-free making them an ideal supplement of RSP withdrawals for example John withdraws $10,000 from his RSP and $220,000 from his tfsa to meet his $30,000 income needs which avoids a higher tax bracket because that $20,000 from his tfsa isn't taxable shift excess
10:51 RSP withdrawals to your tfsa most people retire without having a Max lfsa so you can move any extra RSP funds into that tfsa which reduces future Rift withdrawals avoids higher taxes and provides taxfree growth so for example Sarah withdraw $60,000 from her RSP contributing $20,000 to her tfsa to reduce future taxable income using life insurance as a tax saving tool permanent life insurance policies such as whole or universal life offer tax efficient ways to transfer wealth when you pass away how it works policy holders can grow Investments within the policy tax free and leave a tax-free death benefit to beneficiaries so as an example Sarah uses the whole life policy to grow $100,000 taxfree which will transfer to
11:39 her erors completely taxfree this is especially effective because when you pass away your entire estate is deemed disposed of and will be taxed at that given rate so what happens often is people will retire with say a really large RSP which will then be tax at that entire say 40 or 50% tax R by shifting some of their RSP savings into say a life insurance policy they can then transfer that value onto their beneficiaries completely taxfree and here's a pro tip this strategy depends a lot on your health and the best time to get life insurance is while you're still healthy and here are some Tax Strategies for self-employed business owners being self-employed gives you some amazing ways to save on taxes and with today's gig economy even workers such as Uber
12:26 drivers or door Dash deliverers qualified for this and some strategies are things like claiming business expenses running a business comes with costs but the good news is that many of them are tax deductible think office supplies marketing business travel professional fees or even a portion of your vehicle expenses if you use it for work for example if you make $80,000 a year but claim $220,000 in business expenses your taxable income drops to $60,000 at a 30% tax rate that's $6,000 in tax savings that's why it's well known that a dollar of self-employed income is worth more than a dollar of employee income because that tax write off is so valuable next is home office deductions if you work from home you could claim a percentage of your household expenses like rent utilities and property taxes the percentage is based on the space you use for business
13:12 so for an example let's say your home office takes up 10% of your home and your annual household expenses total $30,000 you can claim $3,000 as a deduction saving $900 if your tax rate is 30% next is to hire a family member if you have a spouse or family member helping you with your business you can pay them a reasonable salary for their contributions this shifts income to someone in a lower tax bracket and saves your family money overall for example if you earn $100,000 at a 35% tax rate and pay your spouse $30,000 at a 20% tax rate your taxable income drops to $70,000 this results in $10,500 in savings for you while your spouse only pays $6,000 in taxes on their income the net family tax savings is $4,500 note that it's very important for
13:59 the salary to be reasonable you can't for example pay your spouse $100,000 to do some basic data entry and be mindful of that because the CRA is very strict on this rule Tax Strategies are super important to help protect and grow your net worth at blueprint Financial we're here to help you keep more of what you earn with personalized strategies tailored to help you save on taxes so check out our services on the website please like this video And subscribe for more tips and thanks for listening
