How To Pay Less Tax In Canada

How To Pay Less Tax In Canada

Everybody hates taxes, am I right? It doesn’t matter if you are rich or poor, barely making ends meet, or raking in heaps of cash, the CRA will come for their piece of your income.

After years of helping to prepare taxes for friends and family, the only thing I’ve seen that makes this financial obligation a bit more bearable is finding as many tax breaks as possible.

If you want to learn how to pay less tax in Canada, I hope these tips will help you out.

There are a number of (legal) ways to pay less tax in Canada. But relatively fewer people take advantage of all the credits and deductions that CRA permits, and that can lower your tax bill significantly. It’s mostly because a lot of people don’t even know where they can save on taxes.

But if you are determined to learn how to pay less tax in Canada, this article will hopefully identify at least some of the ways which apply to your particular situation.

1. Child Care Expense

Summary: If you have children, you can deduct childcare expenses from your tax bill.

If you and your spouse works and no one is home full-time to take care of the child, the chances are that you are paying a lot of money for daycare expenses. While that’s a necessary expenditure, you can lighten the burden a bit by claiming these expenses on the tax returns. The spouse/parent with the lower income has to claim these expenses on their returns.

You can claim up to $8,000 a year for a child aged seven or younger, and $5,000 for children between seven and sixteen. You can claim daycare, nursery, nanny, caretaker, and boarding school expenses. Make sure you ask for receipts and SIN numbers from these service providers.

2. Maximize RRSP Contribution

Summary: RRSP contributions are tax-deductible and can lower your tax bill by thousands of dollars.

Save for your future and contribute to your RRSP. Not only will your investments grow in a tax-free environment, but you can also lower your tax bill significantly. However, it’s not purely tax-free, and you will have to pay taxes on it once your RRSP matures, but you can convert it into an RRIF and reduce your tax burden.

The 2022 maximum RRSP contribution is $29,210, or 18% of your income, whichever is lower. See this list for updated numbers.

3. Spousal RRSP Contributions

Summary: Lower your tax obligations by contributing to a spousal RRSP.

If you are in a higher tax bracket than your spouse, you can maximize your tax break by contributing to a spousal RRSP (within your contribution limit for the year). Your contributions will not affect the available contribution room your spouse or common-law partner has.

Its benefits are two-fold. If your spouse earns less than you and is in a lower tax bracket, they wouldn’t have gotten a tax break as big as yours, even if they fully contributed to the RRSP on their own. Also, when your spouse finally withdraws from the RRSP (or RRIF), they will be in a lower tax bracket than you and pick up a lighter tax bill.

4. Claim Medical Expenses

Summary: Several medical expenses that are not covered by your insurance are tax-deductible.

If you or a dependent incurs medical expenses that aren’t covered by your insurance, you can claim them on your tax returns and lighten up your tax bill. Many of these expenses can be pretty hefty, like full-time and specialized care. You can claim the entire amount on your tax returns.

Apart from care, expenses like prosthetics, insulin, insulin pens, hearing aids, eyeglasses, contact lenses, vitamins, etc. For some of these, you need a medical prescription to claim the deductions.

5. Donate Generously (And Smartly)

Summary: Donations are a non-refundable tax credit and can reduce your tax bill.

Donations help you earn both provincial and federal tax credit, and can help offset your tax bill. You not only get to claim the tax credit on donations for the current year but also claim tax credits for donations up to five years back if you have proof that you donated to eligible entities.

Since it’s a non-refundable credit, you should only use this deduction for years where your tax bill is expected to be higher. A smart move is to donate securities that have accumulated capital gains directly. You won’t have to pay any tax on capital gains, and your tax charitable credit will be a bit higher.

6. Split Your Pension

Summary: Splitting a pension with a spouse or common-law partner can reduce your taxable income.

You can split your CPP pension by up to 50% with your spouse, depending on how long you have lived together. The pension split only makes sense when you are 60, and the income and tax bracket of one spouse is higher than the other. By splitting the CPP, the higher tax-bracket spouse can lower their taxable income. CPP splitting goes both ways. You can also split RRIF income, but the rules are different.

7. Transfer Tax Credit To Your Spouse

Summary: Some federal tax credits can be transferred between spouses

If your spouse or common-law partner has certain tax credits, but their tax obligation isn’t high enough to be canceled out to zero if they apply all the tax credit towards it, they can transfer the excess to you.

These expenses include tuition, education, and textbook amounts, pension amount, disability amount, age amount, and caregiver amount. This can help the high-income spouse offset their tax obligation, resulting in an overall lenient tax burden on the couple.

8. Contribute To RESP

Summary: Contributing to an RESP account can help you save for your child’s education tax-free.

While an RESP doesn’t lessen your tax obligation right away, it’s a powerful financial tool. Instead of paying for your child’s post-grad education with your taxable dollar, you can contribute to an RESP. It will still be with your post-tax dollars, but the money in the RESP will grow tax-free. At max, you can contribute up to $50,000 to an RESP, that’s equivalent to $2,500 a year for 20 years.

In the right investment vehicle (that offers 5% returns a year as an example), it can grow to $89,000. Plus, the $7,200 you will get from the government through matching contributions. The money is taxable when taken out, but since your child is likely to be in a lower tax bracket, their tax obligation will be close to zero.

9. Home Office Tax Credit

Summary: Working from home can make you eligible for significant tax breaks.

For self-employed individuals, home office expenses can also be a decent amount of deduction. You can claim the portion of your home (based on square footage) that you use as your home office, on your tax returns.

So if it accounts for 15% of the total space, you can claim 15% off on your utilities, insurance, mortgage interest, and property tax. You can even claim part of the wages you pay to the individual who provides cleaning services in your home. Stationary can also be claimed, but not capital expenses.

10. Employ In-House

Summary: Hiring your child and spouse can lower your tax obligation.

If you run a business, and you want to inflate your business expenses (legally), enough to lower your taxable income, a smart way is to hire your child or spouse in the business. Be warned that it’s something that CRA monitors closely, and you can’t just pay out a salary to your family members based on a pretend position. They must provide valuable service to the business (even if it’s as your assistant), and they have to be compensated fairly.

11. Incorporate

Summary: Once your business income grows beyond a certain point, it makes sense to get incorporated.

Some small businesses grow large enough that it makes more sense (tax-wise) to incorporate them because otherwise, the business income will push you in the top tax bracket. But it requires rigorous cost-benefit analysis. If the cost of incorporating your small business (or even a side hustle) outweighs the tax break you will get by incorporating; it doesn’t make financial sense to do so.

12. TFSA

Summary: Used effectively, it can be the most powerful tax-management tool you can have.

TFSA contributions aren’t tax-deductable like RRSP, but since whatever comes out of your TFSA is tax-free, if you have accumulated enough wealth in it, you can reduce your taxable income substantially, especially in your retirement years. For example, instead of withdrawing more than the minimum from your RRIF (which is taxable), you can withdraw from your TFSA and enjoy your stay in the lower tax bracket.


Effectively using your registered saving accounts, choosing the right securities to invest in, accounting for all child-related tax credits, benefiting from spousal tax privileges, and business-related tax-breaks – All of these can help push your tax bill to a more reasonable and manageable magnitude.

A Guide To Tax Season For Small Business Owners

A Guide To Tax Season For Small Business Owners

It’s that time of year again – everyone is talking taxes and it’s at the top of your mind even though you’ve been trying to avoid it all year. Besides just getting your taxes filed to avoid scary calls from the CRA and those hefty penalties and interest – tax season is a great opportunity to get a clear picture of your company’s financial health.

Money is the bloodline of your business so it’s important to have a finger on the pulse of your finances and not be afraid of it.

To make it just a little easier for you and in hopes that you can use tax season as an opportunity to understand where all your hard earned money is going, here is a guide with some quick tips and helpful information that might make this season a little easier and more informative for you!

Get Your Financial Books in Order

If you’re one of those people who have meticulously organized and tracked your business finances (i.e. income and expenses) throughout the year then you’re ahead of the game.

However, if you’ve been putting off dealing with your business finances all year, then now is the time to sit down and get organized!

If you’re a sole proprietor, using a tool like Microsoft Excel is a cost-effective and simple tool to track all your income and expenses. Alternatively, a more robust option is to use cloud-based accounting software such as Xero. There are other great cloud-based solutions such as Receipt Bank or Hubdoc that can really help you get your receipts and invoices organized. These are also great tools to store all your supporting documents, in the event of a CRA audit/review. You wouldn’t want to pass over receipts that have completely faded, in which case, they might disallow your expenses!

If you just don’t have the time to get your books in order and you have room in your budget, consider hiring a qualified bookkeeper to help you. Having clean and organized books will also help reduce your cost to file taxes (if you’re paying an accountant to file for you).

Pro Tip: Keep your detailed and itemized receipts for everything! Bank statements do not count as supporting documents for expense claims.

Don’t Miss The Deadlines for Filing Income Tax Returns

Small businesses that are operating as a sole proprietorship or partnership will have until June 15th to file their taxes. However, it’s important to note that any income taxes owing are due by April 30th. If you file late and end up owing taxes, you’ll pay interest and penalties on your outstanding tax balance until you submit your payment to the CRA. Keep your money in your pockets!

Small Business Tax Myths

1. My business did not make any money so I don’t need to report anything on my tax return.

False. Even if you had a net loss for the year (i.e. more expenses than income), you are still required to report your business income and expenses on your tax return. Moreover, it’s actually beneficial for you to report that net loss as you can apply the loss to other sources of income, such as employment income or investment income. If you can’t use those business losses in the current year, you can carry them back for three years and recover taxes previously paid or carry them forward for 20 years, to offset future earnings.

2. I made less than a thousand dollars and it’s just a hobby so I don’t have to report that income.

False. Even if you only made $10, you are required to report that income to the CRA. The CRA does not determine what is and what isn’t a business by how much money you make or by your intentions to “run a business”. They define a business as “any activity that you do for profit”.

Review the Financial Health of Your Business

Once your business finances are in order after filing your taxes, this is a great time for you to review the financial health of your business, see how you performed in the past year, and set financial goals for the year ahead. Did you make money or did you spend way more than you brought in? Was there an area where you spent way more than you expected? Where can you streamline costs and cutback on expenses?

Most business owners think that racking up tax deductions is great as it reduces your taxable income. However, you are still running a business and the goal is that your business will make money. Reducing unnecessary expenses also means there is more cash in your pockets and less outflow of money. Paying taxes is not a bad thing. It means that you are running a profitable business!

Consider this:

Scenario 1 –

  • If you made $1000 of income and spent $500 on expenses. You will only get taxed on $500. The taxes you would have to pay to the CRA would be approximately $125.
  • Amount of money left in your pocket at the end of the year = $375 ($1000 of  income minus $500 of expenses and $125 of taxes).

Scenario 2 –

  • However, if you made $1000 of income and spent only $200 on expenses. You will get taxed on $800. The taxes you would have to pay to the CRA would be approximately $200.
  • Amount of money left in your pocket at the end of the year = $600 ($1000 of  income minus $200 of expenses and $200 of taxes).
  • You are still better off at the end of the year, if you managed your expenses and spent less money on things just for the sake of a “tax write off”.
What are the Canadian tax brackets in 2022?

What are the Canadian tax brackets in 2022?

It’s a yearly rite of passage for Canadians to jump through hoops trying to figure out how much tax to pay. Normally, it’s an exhausting exercise. But we’ve gathered all of there relevant information in one place to help you get through everyone’s least favourite season. Here’s what you need to know about income tax rates.

Federal Tax Bracket Rates for 2022

The following are the federal tax rates for 2022 according to the Canada Revenue Agency (CRA):

  • 15% on the first $49,020 of taxable income, and
  • 20.5% on the portion of taxable income over $49,020 up to $98,040 and
  • 26% on the portion of taxable income over $98,040 up to $151,978 and
  • 29% on the portion of taxable income over $151,978 up to $216,511 and
  • 33% of taxable income over $216,511

How to Identify your Tax Bracket

How much tax you’ll pay is determined by where you live in Canada, and how much income you declare from all sources. Importantly, your provincial rate is determined by the province you are living in on December 31 of the tax year. So, if you move from Ontario to Nova Scotia in July, and you find yourself living in Nova Scotia on December 31, you would fall under the Nova Scotia provincial tax rates.

How Tax Brackets Work

Your tax bracket is based on “taxable income”, which is your gross income from all sources, minus any tax deductions you may qualify for. In other words, it’s your net income after you’ve claimed all your eligible deductions.

Once you know what your taxable income is, you’ll then apply the relevant federal and provincial rates to your net taxable income. You should calculate your federal income tax first, your provincial rate second, and then add the two together — and presto!

Your marginal tax rate is the combined federal and provincial income taxes you pay on all sources of income at tax time. The tax rate varies by how much income you declare at the end of the year on your T1 General Income Tax Return (the form with the exciting-sounding name that you fill out at tax time) and where you live in Canada.

Federal Tax Bracket Rates 2022

The following are the federal tax rates for 2022 according to the Canada Revenue Agency (CRA):

  • 15% on the first $49,020 of taxable income, and
  • 20.5% on the portion of taxable income over $49,020 up to $98,040 and
  • 26% on the portion of taxable income over $98,040 up to $151,978 and
  • 29% on the portion of taxable income over $151,978 up to $216,511 and
  • 33% of taxable income over $216,511

Provincial Tax Brackets Rates 2022 (in addition to federal tax)

Like we said, the province you are living in on December 31 will determine the provincial portion of your income tax. So, if you are planning skipping town to a province with lower taxes, do it before December 31 of the calendar year. The following are the provincial tax rates for 2022 (in addition to federal tax) according to the Canada Revenue Agency:

British Columbia5.06% on the first $42,184 of taxable income
7.7% on the next $42,184 up to $84,369
10.5% on the next $84,369 up to $96,866
12.29% on the next $96,866 up to $117,623
14.7% on the next $117,623 up to $159,483
16.8% on the amount over $159,483 up to $222,420
Alberta10% on the first $131,220
12% on the next $131,221-$157,464
13% on the next $157,465-$209,952
14% on the next $209,953-$314,928
15% on the amount over $314,928
Saskatchewan10.5% on the first $45,677 of taxable income,
12.5% on $45,677 up to $130,506
14.5% on the amount over $130,506
Manitoba10.8% on the first $33,723 of taxable income
12.75% on the next $33,723 up to $72,885
17.4% on the amount over $72,885
Ontario5.05% on the first $45,142 of taxable income
9.15% on the next $45,142 up to $90,287
11.16% on the next $90,287 up to $150,000
12.16% on the next $150,001-$220,000
13.16 % on the amount over $220,000
Quebec15% on the first $45,105 of taxable income
20% on the next $45,105 up to $90,200
24% on the next $90,200 up to $109,755
25.75% on the amount over $109,755
New Brunswick9.68% on the first $43,835 of taxable income
14.82% on the next $43,835 up to $87,671
16.52% on the next $87,671 up to $142,534
17.84% on the next $142,534 up to $162,383
20.3% on the amount over $162,383
Nova Scotia8.79% on the first $29,590 of taxable income
14.95% on the next $29,591-$59,180
16.67% on the next $59,181-$93,000
17.5% on the next $93,001-$150,000
21% on the amount over $150,000
Prince Edward Island9.8% on the first $31,984 of taxable income
13.8% on the next 31,985 – $63,969
16.7% on the amount over $63,969
Newfoundland and Labrador8.7% on the first $38,081 of taxable income
14.5% on the next $38,081 up to $76,161
15.8% on the next $76,161 up to $135,973
17.3% on the next $135,973 up to $190,363
18.3% on the amount over $190,363
Nunavut4% on the first $46,740 of taxable income
7% on the next $46,740 up to $93,480
9% on the next $93,480 up to $151,978
11.5% on the amount over $151,978
Yukon6.4% on the first $49,020 of taxable income
9% on the next $49,020 up to $98,040
10.9% on the next $98,040 up to $151,978
12.8% on the next $151,978 – $500,000
15% on the amount over $500,000
Northwest Territories5.9% on the first $44,396 of taxable income
8.6% on the next $44,396 up to $88,796
12.2% on the next $88,796 up to $144,362
14.05% on the amount over $144,362

Remember: Your marginal tax rate is the total of both federal and provincial taxes on income.

Example of tax calculation

Meet a fictional chap named John who lives in British Columbia. John has been contributing to a RRSP to reduce his taxable income. After his RRSP contribution and other tax deductions and tax credits, he has taxable total income of $55,000. Here’s what his tax calculation might look like:

John’s Federal tax bill The first $49,020 is taxed at 15% (the lowest income tax bracket), which works out to $7,353. He has $5,980 remaining, ($55,000-$49,020) — that amount will be taxed at a higher rate of 20.5% which works out to $1,225.9. This means his total federal tax owing is $7,353 + $1,225.9 = $8,578.9

John’s provincial tax bill (using BC rates as example) Remember, John’s provincial rate is based on his province of residence as of December 31 of the calendar year. John’s first $42,184 will be taxed at 5.06%, which works out to $2,134.51. The remaining $12,816 ($55,000-$42,184) will be taxed at 7.7% which works out to $986.83. His total provincial tax is $3,121.34.

John’s total tax bill John’s combined federal and provincial taxes owing is $8,578.9 + $3,121.34 = $11,700.24.

Tax Credits and Tax deductions

Tax credits and tax deductions can reduce either your income or the amount of tax you owe.

Tax credits

Both federal and provincial tax credits exist, and you’ll be glad to hear they help you pay less tax. There are two types: Non-refundable and refundable


A non-refundable tax credit reduces the amount of tax payable. In order to claim a non-refundable tax credit, you must actually owe taxes — in other words, you must have earned enough income to owe income tax. Non-refundable tax credits can reduce your tax owing to zero, but if you have more tax credits than tax owing, you do not receive a refund for any surplus amount. Let’s make that more concrete: if you owe $2500 in taxes and have non-refundable tax credits for $2700, your taxes will be reduced to zero, but you will not receive the extra $200.

Some non-refundable tax credits include:

  • Personal exemption amount (anyone who owes tax is entitled to claim this exemption)
  • Exemption for taxpayers over age 65
  • Exemption for taxpayers with children
  • Exemption for people receiving a pension
  • Exemption for people with a certified disability
  • Exemption for people who are caregivers to someone with a disability

Some other non-refundable tax credits include tuition, medical expenses, Employment Insurance and Canada Pension Plan deductions, interest paid on student loans and adoption expenses. Most provinces have tax credits to reduce the provincial tax owing.

Refundable Tax Credits

Refundable tax credits are paid to anyone who qualifies for them, whether they had income or not. Usually, they’re paid out over the year. The most well-known non-refundable tax credit is the GST/HST payment that people with a combined family income of less than $42,000 received.

Tax deductions

Tax deductions don’t work as many people suppose. Instead of reducing the amount of taxes you need to pay, a tax deduction actually reduces the amount of your gross income, which can put you in a lower tax bracket and reduce the amount of taxes you will owe.

The most common tax deductions are:

  • Pension Adjustment. You get credit for any pension contributions made in the calendar year on your behalf. Your employer will list the Pension Adjustment amount in box 52 on your T-4 slip that lists your income and income tax deducted for the year.
  • Union and professional dues
  • Child care expenses
  • Registered Retirement Savings Plan (RRSP) contributions up to the maximum allowable amount per year. Your financial institution will provide you with a contribution receipt, and you can find out how much RRSP contribution room you have by looking on your Notice of Assessment (the summary form that you receive after you have filed your previous year’s taxes), by looking on your tax account or by calling CRA at 1-800-959-8281.
  • Donations to charitable organizations or political parties

If you owe income tax, the Canada Revenue Agency will let you work out a payment plan if you cannot pay the taxes all at once. You will be charged interest on any balance you still owe. But be careful: if you owe income tax and don’t pay, and you don’t make an attempt to work out a payment plan, CRA can seize any refundable tax credits you may be eligible for, and they may take you to court and seize the contents of your bank account.