Word of Mouth… Three main ways to reduce taxes
Part 1 Private tax reduction
Among the ways to reduce taxes, there are legal, semi-, and illegal. We will look at both the most popular and relatively little-known of all these categories.
Illegal tax evasion is a criminal offense in Canada, and we do not recommend that you break the law under any circumstances.
Disclaimer: The information is provided for “general development” only, and in no case is an action guide.
1. Understatement of Total Income to reduce taxes
Let’s start with the simplest and most common method – underestimating total income. Taxpayers often assume that in our information age, they can put a couple of coins in their pocket without “Big Brother” noticing. And almost everyone considers them the smartest and invulnerable.
We forget that there are computers, partners, dissatisfied friends and ex-spouses, and professional advisors. There are dozens of other sources from which the CRA gets information about you and your finances.
By the way, when discussing consultants, remember that if any financial misconduct occurs, your accountant has a legal obligation to report it. I assure you that the license for the vast majority of them is more important than all your problems, multiplied by a hundred and squared. In short, deliberate understatement of income when filing a tax return is a criminal offense in Canada, so draw your conclusions.
2. Reducing Taxable Income
The next stage, logically, will be the desire of taxpayers to reduce their taxable income because the state allows us all to make a number of deductions from our gross income (the so-called “tax deductions”). For example, everyone knows the RRSP retirement savings program. Your payments to this program are directly deducted from your total income, which largely explains its popularity. The same applies to payments into your employer’s pension plan (RPP). This is all legal.
3. Operation “Babysitter”
If you have children under the age of 16, you can write off the cost of a nanny (nursery, kindergarten, summer camp) from your income. You are allowed to write off up to $8,000 for a child under 7 years old. For children under 16 – no more than $5,000. With rare exceptions, this can only be done by the spouse whose “net” income is less. The legal scheme is that you pay money to a real nanny and write it off as income. With illegal write-offs, you actively target individuals with either small annual incomes (ideal candidates are newcomers-immigrants and high school students) or no income at all, and you attribute the entire amount to them.
Naturally, in the second case, the babysitter does not pay tax because his (her) income does not exceed the non-taxable minimum. The CRA is well aware of this scheme, but fighting its participants is quite difficult. Especially when the “nanny” declares the profit received from the “mother.” Let us emphasize once again that this scheme is illegal.
Payments to non-working grandparents, other relatives, and their own children over 18(!) years old look much more convincing. There is nothing illegal about this; the main thing is to remember to fill out their tax return and indicate the amount received from you (it means that they actually care for the children).
4. reduce taxes – Operation “Divorce” (separation).
Some taxpayers are trying to restore “justice” in the inequality of rights legalized by the state for married couples in relation to single-parent families.
Single parents receive the so-called “tax credit” for a child under 18 who has no income. While “two-parent families” do not receive such a credit. The law does not establish how long “separation” should last. So make a divorce within a year (paperwork is not required) and then make peace. Then the spouse with whom the child remains has the right to this “tax credit.” This means you gets about $3,100 in tax refund. If there are two children in a family, and each parent takes one of them, this return will accordingly double.
To verify the legitimacy of your “separation,” the CRA will require two basic conditions:
- the spouses must no longer live under the same roof and
- to have a separate bank accounts.
Naturally, this scheme can be both legal and illegal to reduce taxes. If your “divorce” is fictitious, you can be punished according to the law.
Consult your tax advisor, as child allowances and benefits have many associated nuances. You manage to separate during the year and then reconcile. You must indicate that as of December 31st, your marital status remained unchanged – “Married” when filling out the annual tax return.
Thank you for reading this post till the end. We appreciate your comments, likes and sharing with friends and colleagues.
For more insights and a free consultation, visit 777taxes.com and call us at (416)857-7570. Subscribe on our https://www.youtube.com/@777taxes GMB profile: https://maps.app.goo.gl/HgfQdsenRFaaXtNY9
Your success starts with informed tax strategies!
#CanadianTax #VaughanAccountant #ReduceTaxes #TaxStrategies #TaxSavings #TaxPlanning #TaxAdvisor #TaxConsultation #TaxLaws #TaxReduction #TaxCredits #TaxRefund #FinancialPlanning #LegalTaxStrategies