For those still organizing shoeboxes of tax receipts, the 11th hour is upon you.
There is no less rewarding time of the year than when one reflects on annual earnings and recognizes the amount of taxes both remitted throughout the year, and/or due upon tax filing. We also must realize that while taxation appears punitive, it does provide many services and supports enjoyed by all citizenry.
For those contemplating creative tax strategies, there is no proven method to escape taxes. Attempting to practice in this black art never succeeds in the long run. There are, however, practical tax reduction strategies that all should be aware of.
A few key terms to be familiar with: A tax ‘deduction’ reduces your taxable income in a given year. An example of a tax deduction is an RRSP contribution, which is directly applied against your taxable income thus reducing the tax you pay.
A tax ‘credit’ is taken directly off the tax you owe. These are generally calculated as a percentage and set to a predefined maximum allowance. Some examples would include childcare expenses, child activity/ sports expenses, tuition costs, medical expenses, donations, etc.
If you are looking to reduce the amount of tax you pay, where you live can have a considerable impact on your pocket. Prince Edward Island has the lowest provincial basic personal exemption. On the Island you can earn $7,708 without having to pay any tax. In Alberta the basic exemption is $17,593. To put this in a closer context, New Brunswick has an exemption of $9,388; and Newfoundland is $8,451.
The local basic exemption is well overdue to be raised, especially when virtually every other local tax and fee is indexed to inflation.
Consumption taxes vary by province as well. Harmonized sales tax (HST) ranges from 5% to 15%. The lowest rates in Alberta and Yukon at 5%, the highest in Quebec; P.E.I. currently taxes all basic purchases at 14%.
According to the Fraser Institute, the average Canadian contributes all their earnings to taxation until the second week of June. The day taxpayers begin keeping their earnings is referred to as tax freedom day. In other terms, some form of taxation absorbs almost half of all average Canadians income.
If you are a newcomers to Canada, and have recently landed in Prince Edward Island, are you exempt from income tax reporting? Once you become a resident of Canada and have established significant residential ties (i.e. landing in Canada), you should file a tax return. Taxes may not necessarily be owed. It is best to consult professional advice, as there is some uniqueness to tax implications; but if you have entered Canada to maintain a residence a return should be filed.
April 30th is the day that your personal income tax files must be submitted to the Canada Revenue Agency.
Organize your tax information, consult a professional, file electronically or follow the tax form instructions to get your returns submitted. Remitting and paying taxes must be one of the most despised actions in our culture, but these contributions afford us the many services our society enjoys and benefits from.
Blake Doyle is The Guardian’s small business columnist. He can be reached at email@example.com.