As with every other country in the world, Canadians have to pay tax. It’s not the most interesting subject in the world, but it is one of those unavoidable obligations that we all have to adhere to. So here are a few tips on how you can manage your taxes and make sure you don’t end up paying less – or more – than you should.
Know your dates
The key to avoiding being penalised by the Revenue Agency for incorrect or late payment is to know the important tax dates throughout the year and make sure you anticipate them in plenty of time. For businesses, that includes knowing when your corporation tax is due. Like other taxes, you can arrange to pay in instalments but miss one and you could find yourself staring down the barrel of an investigation and a hefty fine. Get all the latest details on corporate tax dates from the Revenue Agency’s T7B-CORP – Corporation Instalment Guide. All other key dates are also available online on the revenue’s website. A good tip is to use your email alerts guide to set up a system of alerts to notify you of important dates. That way you need never miss a key tax date again.
Keep good records
Personal taxation should be an ongoing project throughout the year. By staying on top of your figures, the end-of-year return should be a relatively simple and straightforward process. You do have a certain amount of leeway when it comes to backfilling tax returns, particularly if there has been a change to the rules. Keep up to date with all the legislation and sign up for any of the Revenue Agency’s notifications.
Use a good quality accounting software to make sure your accounts are in order, including any income from side projects that may be eligible for taxation. Bear in mind that under Canadian tax law, you may not be able to benefit from all the write-offs as you incur them, so good records will allow you or your accountant to go through the year’s earnings and ensure that the proper deductions are claimed in retrospect.
Check out your tax breaks
Nobody wants to pay more than they have to, so check out what tax breaks you may be eligible for. Certain types of investments benefit from preferential tax breaks on dividends and capital gains. A tax-protected retirement portfolio is a preferential location to hold your finances than in a more exposed income portfolio.
Put some money into your RRSP
A good way of securing a refund on your tax bill is to transfer some of your earnings into an RRSP. But to get the best benefit from this, ensure that you contribute to your fund before the stated deadline. Avoid borrowing money to make an RRSP contribution as you will still have to pay tax on the interest on the loan. The best advice is to work with your accountant or financial advisor to ensure that you get the most out of your RRSP.
Refer to your Notice of Assessment to see how much you can transfer into an RRSP and what the maximum contribution is annually. You may need to put in the maximum amount to see the maximum refund, so be sure that your finances can cover it before you commit to a contribution.
Great tips! Good records and knowing your dates are key!
Must emphasize the record keeping as dates can be missed even if you knew them 🙂
Great tips David! The most important advice for me when it comes to managing our taxes is to keep good records. It will not just save us time and effort when the time to file our taxes come, but it will ensure that we’ll be paying the correct amount.
Ensuring you pay the good amount saves you from potential headache in the future. If one ever needed to go back in time, you wouldn’t have to worry at all if your taxes were in order or not.
Great advice! The most important thing with taxes is simply staying on top on them. Many people forget or procrastinate doing their taxes. Always be proactive!
Proactive is key here but unfortunately that’s not a feature everyone has in common.
Very great tips! One thing I’ve learned in paying taxes especially is to always pay on time. A single day of delay means having to pay late charges already.
Right on Sarah, Not worth paying any extra because of a late payment.
I am using Mint.com to manage my investment, expenses and loan portfolio. It helps me to remember important dates and avoid extra penalty. Therefore I did not miss any schedule date to pay tax.
What is RRSP? It is new term for me.
Mint seems to be a nice tool.
RRSP is Registered Retirement Savings Plan, an account that provides tax benefits for saving for retirement in Canada. Basically your money grows for free and you’re only taxed when you take it out.