Tax planning can be used to minimize your tax payable. Here is a couple of ways that you can achieve this:
- Invest in Registered retirement savings plans (RRSP). Eligible RRSP contribution amounts will reduce your taxable income. However, any RRSP withdrawal will increase your taxable income, whether you re-contribute that amount to the plan later that year or not.You do not have to deduct an RRSP contribution in the year in which it was made; it can be carried forward as a deduction in a later period. That makes it important to use all of your personal tax credits first before you deduct your RRSP contribution.Tax free savings accounts (TFSA) will not lower your taxable income at all.
- Pension income splitting. You are allowed to split up to 50% of eligible pension income with a spouse or common-law partner. This can be a good strategy to lower taxes if the spouse to whom the funds are being transferred has a lower income. In order to do this you must fill out Form T1032 – Joint Election to Split Pension Income.
These are only two of the many ways you can reduce your tax payable so come see us at Ashcroft & Associates for more information on how to reduce your tax payable.
