How to reduce income tax in Canada?

Always people look forward to minimize the income tax. If you are a resident of Canada, you can reduce the income tax by various methods. However, if you are a non-resident, then you need to consult a professional and find out about the non-resident taxation. You can reduce the tax when you save for your retirement years. The RRSP or the registered retirement savings plan is an easy way to save for your retirement and save the taxes as well. The TFSA is another way to reduce the income tax payment in Canada. Tax Free Savings Account or TFSA can be done by investing the money in shares, bonds, mutual funds, and this is the perfect way to save tax. When you invest in lands or properties, you are subject to real estate taxation, but when you go for this option. The profits you gain are not taxable and when you withdraw the amount you would not be taxed for the same.

You can also save or prevent from paying extra, for you pay your tax on time. Filing the tax returns on time lets you stay away from paying the penalty. If you are paying after the deadline, you would be paying 5 percent extra of the tax. You will be subjected to pay the CRA penalty. If you have kids, then you can easily cut down the tax. This is because, the children have a lower tax bracket compared with the parents. You can gift the assets to your children. When the assets grow in value, you will not be taxed more, as your children are gifted the same from you. Automobile returns are subjected to tax. If you want to reduce the same, an easy way is to claim the automobile costs. For this, your employer should state this as a requirement in the form T2200, and this should be a part of employee agreement as a prerequisite of the employee.

Investing in the properties of other countries is an easy way to secure your tax amount. Most of the times the income tax for foreign investments are little or nil. However, keep in mind if you are bringing this money to Canada the same is taxable. You can pay some amount as salary to your family members. Keep in mind that these family members should be in the lower tax bracket. Children below 18 years of age do not have to pay tax. So, you can share a part of your salary as tax to them.

When the small businesses are incorporated, then you can enjoy great tax benefits. When you go for shareholder loan repayments, you can save tax compared with that of the salary and dividends. You need to know what the tax reduction policy of Canada is. The policy is available online and you can also get the Tax Payers’ Bible from the income tax department. You can save more on income tax if you are informed in advance.

Canada-US Tax Treaty – Key Points

Canada has entered into tax treaties with a lot of countries, but none is considered more important that the Canada-US tax treaty. The importance of this treaty is largely because both the countries are neighbors and there are a lot of residents of US are living and working in Canada and vice versa. The first version of the current treaty was signed on September 26, 1980. There have been five amendments to that version of that treaty and these protocols were signed on the following dates.

• June 14, 1983

• March 28, 1984

• March 17, 1995

• July 29, 1997

• December 15, 2008

The United States of America and Canada have strong trade relations and therefore there are a lot of people who cross borders for their work. The need for the Canada-US tax treaty was recognized to be an important step in building relations between the two countries and to facilitate the ease in which citizens of one country could work and earn in the other country. Due to the many benefits the tax treaty has to offer we have a lot of corporations that are based in US who have interests in Canada and many Canadian corporations have branches and business interests in the US.

Income from Personal Services

According to the Canada-US tax treaty, income that is generated from personal services by a person who is a non-resident of one country and the resident of the other can be exempted provided the conditions that are mentioned in the treaty are met. Some of the exemptions that can be availed by a non-resident are

• An employee that is providing personal services in the other country is exempted from tax if the total payment that is made to the non-resident is less than $10,000 in a tax year.

• This does not apply to public entertainers and there are special rules that are drafted for them.

• A person who is earning more than $10,000, but has spent less than 183 days over a period of 12 months in the country is also exempt from paying tax.

Income from Self Employment

Any income that is generated from self employment is considered to be business profits and is taxed by the US or Canada government if it can be attributed to any permanent establishment in the country. The business profit will be applied to each country and is based on the permanent establishment and how it might be made into a separate entity. Article V of the Canada-US treaty talks about permanent establishments and how one can have them in the countries.

Other Income

Income that is gained out of periodic pensions or annuities that are paid to a non-resident from a source within the nonresident county will be taxed by the nonresident county. But according to the Canada-US tax treaty the maximum tax percentage that can apply for such income is 15% of the gross amount. There are a lot more exemptions that one can get out of the tax treaty.