Taxes and how to avoid them
 

I'm curious to get some input and tips on how you guys find ways to mitigate or lessen your taxes.

Married, one young daughter in day care (stated this year). I make good money.

I take advantage of the RRSP matching program and typically every year my goal is to top up my RRSP contributions to the point I don't pay taxes. Enough to get a couple hundred back to be safe.


I have investments but no sales that would trigger any capital gains, just dividend payouts etc. Nothing crazy.

Wife works, good money. I have her to at least the same with RRSP so she doesn't pay. She does a little more.

What can be done, claimed to help with taxes? Anything? We'll start getting some more child benefits this year?

I've done my own taxes are years now, is a tax accountant really worth it? Are they going to help enough to justify the cost?

Watch this video. It's a pretty good summary


Alternatively you can dive deep into the income tax act or hire an accountant who will do this for you. Within the easy tax credits that you mention - childcare benefit, Canada workers benefit, etc any accountant should be able to do and should be aware of.

Most accountants should be able to navigate the ITA. But not everyone, myself included, are willing to take on the extra costs / liability with being tax efficient or applying complex tax strategy as it may come with a 25K fine for both the client and the advisor if the CRA deems it as abuse.

Which nowadays, with the 40Mil they lost, everything is deemed as abuse of the ITA. I spend a lot more time nowadays fighting the CRA.

I would also completely remove the phrase "avoid taxes" from your vocabulary. You can be tax efficient, but tax evasion is a federal offense that they are heavily cracking down on - no not just the big guys... They're also coming after small business owners and ppl who legitimately make fuck all.

If you're just a salary man, your options are very limited, there's no crazy loophole or things you need to be doing.

The standard things are
- TFSA - $7K/year
- RRSP - 18% of earned income
- RESP
- FHSA

If you have high aspirations, your end game should be to pay more taxes, that means, after you burned all the above, it's time to play big boy money so we can buy the group 911's for the boys.
- Investment in Non-Reg
- Real Estate
- Businesses

Assuming "good income" of $200,000+ income, the impact of both the Canada Child Benefit (CCB) and Canada Workers Benefit (CWB) should be phased out.

Canada Child Benefit (CCB): Families in this income bracket typically do not qualify for the CCB as it is designed to support low- to middle-income households.

Canada Workers Benefit (CWB): This benefit is targeted at low-income earners, and households with an income of $200,000+ would not qualify for any CWB payments.


If we're tryna drive fancy low KM Honda's one day, we must make more money, pay more taxes, and find some smart friends to bounce ideas on how to make more income.

You ain't making "good money" if you're collecting child benefits

Make less money :pokerface:

Move to Dubai

Anyone have suggestions or recommendations for an accountant that would be knowledgeable at this stuff?

They ain't cheap $100-250/hour!

well i don't actually know if i'm getting them. I'm assuming i'm not and nor is why wife

The more money you make, the more taxes you pay

So obviously the solution is to make less money

If you go low enough, you can get money FROM the government, instead of giving it TO them.

Good luck!

You input your income on the forms, then if you qualify, they start mailing you cheques that say child benefits. As your combined income gets closer to 210k, that benefit becomes zero.

Correct, it's auto paid!

As an employee, there's not much you can do other than RRSPs and FHSAs.

However, if you do pay for work expenses, you can get your employer to fill out a T2200 for deduction of work related expenses from your gross income. There's a bunch of criteria to what you can and cannot deduct.

thanks guys, didn't think there was any secrets but figured i'd check

If there's secrets, the entire country would be on it and it'd be patched in 1 year.

No secrets, just tax illiterate not being the most efficient.

Here's my quick tip... top off your TFSA before your RRSP.

Inside your TFSA, invest in things that pay you monthly or sell call options on the things you already have in there.

Every month, withdraw the profits (dividends, options premiums, etc)

Put the profits into your RRSP. You're now essentially funding your RRSP with money you made tax free.

Your RRSP contributions should now trigger a tax refund. Take the tax refund and put it back into your TFSA and repeat.

Since you withdrew money from your TFSA, your contribution room for the next year is actually Previous Available Contribution Room + New Contribution Room For Current Year + Whatever You Withdrew the Previous Year.


That's the best tax cheat code I can give you without getting into incorporating.

Which stocks are you selling covered calls on? How far out? In the money or out? I've been selling covered calls on green days only when the premium goes up, so not consistently.

I sell CC's on anything in the S&P500 so you know they're good companies, they need to have weekly expirations because I sell with a 4 week expiration. When choosing the stocks, I look for oversold RSI and near the bottom of the Bollinger band. Strike is at a 30 delta so about a 30% chance of ITM expiration. I stagger all my options expirations I have something expiring every Friday...easier to manage than having 50 contracts expiring on the same Friday every month.

In the TFSA, it's important to not let your shares get called away too often because CRA will accuse you of running a business in the account. If it looks like your contract is going to expire ITM, roll the contract diagonally (higher strike, further out). I tend hold my shares for at least 6 months before letting it expire ITM... also saves me money because Questrade has an insane $25 exercise fee...

While I am not saying that your system doesn't have merit, I think for a lot of people, the refund provided by an RRSP contribution is more attractive as well as being simpler/having less ongoing maintenance needed in their busy life.

To illustrate this, let's assume a hypothetical person has $50k in cash and is choosing between a TFSA contribution and an RRSP strategy. Let's assume they can make RRSP contributions and get 35% refund on their contributions.

In your example above, they put $50,000 into their TFSA, and then let's generously say they earn 10% in a year ($5,000), which you suggest withdrawing and contributing to the RRSP. Then they get a refund of $1,750 (35% of $5,000) which they contribute back to their TFSA and repeat.

Therefore, after the dust settles and they get their refund, they'd have:
TFSA: $51,750
RRSP: $5,000

Total to start the next cycle with is $56,750.

In an alternative idea, they put the entire $50,000 into their RRSP first and then only fund their TFSA with the refund. They receive a tax refund of $17,500 (35%) and put this into their TFSA. The total to start the next cycle is now $67,500.

At the end of the day, there are pros and cons between both RRSP and TFSA, and the goal is to maximize both. There is enough personalization to these strategies that I recommend people try to not just watch generalize videos and what not about which is "better" as the answer truly is "it depends on what you need the money for." But for people who don't plan to touch either until later in life, generally the math favours simply having more money in the combined total.

-Mark

There are definitely pros and cons to both. For example, if shit hits the fan and you need to withdraw the money, you don't actually have $67,500. You have $50,000 or possibly even less because the withdrawal is added to your income and you have to pay back the tax refund or more depending on the total income with the withdrawal included. On top of that, you don't get that contribution room back.

What works for me may not work for everyone. Everyone's situation is different. I do it this way because I've always topped up my TFSA and mostly neglected my RRSP until the past 5 years so it's easier for me to fund it with TFSA profits. It made sense for me to fund it with money I didn't have to work for.