Time-Sensitive Strategies To Reduce Your Tax Payable
Are you tired of surprises when tax time rolls around?
Did you wish you had known about some strategies you could have benefited from?
Tax season is just around the corner. Now is the right time to do some year-end tax planning. Unfortunately, for most individuals and business owners the Income Tax Act is complicated and difficult to navigate. Where to even begin?
Below are four strategies or tips that will show how you can take advantage right away to reduce your tax contribution. They will make your tax planning easier!
These strategies involve non-refundable tax credits. A non-refundable tax credit is a credit to reduce your tax payable, not your taxable income. These credits are not refunds, they only lower the taxes you have to pay.
1. Charitable Donations
Charitable donations serve a dual purpose.
Monetary returns to the community by helping charities to do their charitable work. And,
Multi-tiered non-refundable tax credits that help reduce your income tax bill.
Here is an example: let’s say you donate $200 or less to a Canadian charity. Your tax credit will then be 20.05% of the amount donated. Should you donate more than $200 this credit increases to up to 44.16%.
Therefore, a donation of $200 will provide a $40.10 reduction in payable taxes. If you donate $2000 your reduction in payable taxes will be $762.98 or 38%.
The government allows you to give away a maximum of 75% of your income.
Plus it’s good to know that a charitable donation can be carried forward for 5 years!
The deadline for these contributions for the upcoming 2023 tax season is December 31st.
2. Political Contributions
Political parties rely on taxpayer support to help them fund campaigns and elections. These contributions are considered non-refundable tax credits. They are also multi-tiered.
For instance, credit is 75% of the first $400; 50% of the next $350; 33.33% of contributions over $750 with a maximum tax credit of $650.
The maximum amount you can give to achieve the $650 tax credit is $1,575. This works out to be a 41.94% credit. Therefore, dollar for dollar the overall best tax advantage is the political contribution.
These tax credits are applicable to federal political contributions. However, there are similar provisions for Ontario’s provincial parties.
3. Medical Expenses
Medical expenses are valid for tax credits for 12 months ending in the tax year they were incurred. For instance from February 2023 - January 2023 or September 2022 - August 31, 2023 (for the 2023 tax season).
The deductible portion of your medical expenses is 3% of your net income to a maximum of $2635 in 2023 whichever is lower. Expenses in excess of this deductible will result in a tax saving of 21%, in other words a reduction in tax payable.
A medical expense that is often overlooked is orthodontic payments for your child’s braces. Many parents make monthly payments, or put the payments on their credit card.
It is recommended that parents prepay their child’s orthodontic bill, if they can manage. This provides much better tax advantages than paying it over time. Particularly credit card payments with 19% interest or more, are not in a parent’s best interest. Paying in cash is.
Paying an orthodontic treatment over a number of years causes parents to loose their tax advantage since they will have to pay the deductible over those years resulting in a much lower or no tax savings.
To lower the deductible it is recommended that the tax payer with the lowest income claim the medical expense.
4. Disability Claim
Disability claims are often confused with disability income.
The province of Ontario has the ODSP or Ontario Disability Support Program which is an income support program. The CPP or Canada Pension Plan-Disability Income provides a pension for disabled adults.
These two programs consider a person disabled for income purposes only. It is important to know that qualifying for disability for the purpose of disability income does not automatically qualify a person for the disability tax credit!
In order to get this disability tax credit you must apply to CRA (Canada Revenue Agency). The application form must first be filled out by a qualified medical practitioner. This form is then to be submitted to CRA for approval. The CRA will calculate the credit back to the onset of the disability.
Disability tax credits are also provided to parents with dependent disabled children.
If you have disabled dependents, including parents who rely on you for support, you can claim disability tax credits. Such a claim will be adjusted automatically by CRA.
If any one of the above strategies appeals to you and if you would like to take advantage of these opportunities, set up an appointment with us. Bring in your latest paystub and or business statement so we can project your year-end balance and run it through our tax program. Together we determine a number of attractive scenarios.
Let’s get you ready for the upcoming tax season! Let’s estimate your income liability and take advantage of these time-sensitive tax strategies.
Please call us at 519-836-4145 to book your appointment. Or, email me at keith@kmclarencpa.com.