10 Easy steps for Canadians to reduce their taxes

It’s that time of year again when we ask ourselves "how can I reduce my income taxes?" especially with the upcoming April 30th deadline to file your tax returns. Here are some quick and easy tips for Canadians to reduce the amount they owe on their taxes and hopefully at the end of the day get some money back.

1. Home Renovation Tax Credit

The home renovation tax credit applies to renovations made to your home after January 2009. The HRTC is equal to 15% of the renovation cost to a maximum of $10,000.


2. Child Care Expenses

Child care expenses include, fees paid to a babysitter or nanny, daycare fees, costs for an after school program, PLASP fees, etc. They are deductible by the lower income spouse, even if the higher income spouse paid for the child care costs. The maximum amount of child care expenses that can be claimed is $7,000 for each child born in 2003 or later and $4,000 for each child born in 1993 to 2002.


3. Accounting Fees

You can reduce your taxes, by deducting fees paid to your accountant for preparing your individual income tax return. The accounting fees paid may be deducted from investment income, rental income, or business income reported on your tax return. In all other cases, accounting fees are non-deductible.

4. Sales Person Expenses

As a salesperson, you can deduct any reasonable expense that you incurred for the purpose of earning commission income. To support your expense deductions, you must complete form T2200, Declaration of Conditions of Employment, and be required to pay for expenses related to your sales activities, as a condition of your employment.

5. Car Expenses

If you are required to use your personal car to carry out your employment duties, you can deduct expenses related to your car or vehicle. However, you must have a completed form T2200, Declaration of Conditions of Employment, and be required by your employment contract to use your personal automobile.

Only the business use portion of your car expenses can be deducted on your personal income tax return, which includes:

· Insurance

· Repairs and maintenance

· Lease costs (to a maximum of $800 + taxes)

· Capital cost allowance (i.e. tax depreciation, at a rate of 30% per year)

· 407 charges

· Parking fees

6. RRSP Contribution

Contributions made to an RRSP are deductible from your income. The maximum amount that you can contribute to an RRSP for 2011 is $22,450. However, if you did not use your entire RRSP deduction limit for the years 1991-2011, you can carry forward unused contributions to 2012. Therefore, your RRSP deduction limit for 2011 may be more than $22,450. For 2012 the maximum RRSP contribution will increase to $22,970.

7. TFSA

Consider contributing to a tax free savings account (TFSA). A TFSA is an account in which any investment income earned is not subject to income tax. Unlike an RRSP, withdrawals from a TFSA are not taxable. Stocks, bonds, mutual funds, and high interest savings accounts can all be held inside a TFSA. In addition, the maximum annual contribution limit to a TFSA is $5,000 plus any unused contributions since 2009.

8. Spousal Plan

Another way to reduce your tax bill is by making a loan to your spouse at the Canada Revenue Agency’s prescribed rate of interest, which is currently 1%. Your spouse could invest the loan proceeds in a business, high interest bearing investments, stocks, real estate, etc., and any income generated from those investments would be included in your spouse’s taxable income. The optimal amount of a spousal loan is equal to the amount that would equalize you and your spouse’s taxable incomes, after taking into account the investment income expected to be generated on the investments made from the loan proceeds. Making a spousal loan to a spouse who is in a lower income tax bracket is an excellent income splitting strategy, and is a perfect answer to your question of “How can I reduce my income taxes?”

9. Children fitness Amount

The children’s fitness tax credit, a.k.a. children’s fitness amount, is a tax credit available to Canadian taxpayers who enrol their children in a physical activity program. The tax credit is calculated as 15% of the amount paid for a physical activity program. The maximum credit that can be claimed is $500. The receipt for your child’s physical activity program should say whether the program qualifies for the children’s fitness tax credit.

10. Public Transit Amount

As a Canadian taxpayer, you can claim a tax credit, known as the public transit tax credit, for amounts spent on monthly or yearly public transit passes. Eligible passes must be for one of the following:

· Busses

· Streetcars

· Subways

· Trains

· Ferries