“Canadian taxes rarely cause excitement for professional real estate investors but following the simple rules by
Canada Revenue Agency CRA can provide you all the guidelines to save money” says Navtaj Chandhoke of Professional real estate investors group (PREIG) Canada. The rules are constantly changing and tightening,Don’t despair; there are still simple ways for Canadian real estate investors to limit their tax exposure. Here are top 10 tips to save yourself tax dollars in Canada. And there are three bonus more optional tips.
Tips to save yourself tax dollars in Canada
1. Borrow to Invest, Save to Buy
The days of debt-free living are passing fast and almost everyone in Canada is carrying some type of debt. Debt can, in a small way, help to reduce your tax bill if you incur the right type. A loan to buy an investment is great to save taxes
The reason is that the interest on loans and mortgages taken for the purpose of investing is tax deductible. From a tax perspective, you are better off using cash or savings for these discretionary purchases and then borrowing to invest in Canadian real estate rather than the other way around; as far as your personal finances go, no debt is the best kind of debt.
2. Selling your Stock – Dec 2014 or Next years?
It’s always good to defer your taxes. If you’re thinking of taking some profits on your stock portfolio, consider waiting until January to sell. This will push the payment of your taxes in Capital gain on the sale to April 2016.On the other hand; if you have unused or accrued capital losses consider selling your winners today and offset your capital gains with your allowable capital losses.
You can reinvest the proceeds and your new investment will have a higher adjusted cost base (ACB) than your current winners. You get the benefit of this “step-up” in ACB without triggering tax when your capital losses offset your gains.
3. Increase business expenses
Another way of “managing” your income for the year is to increase your business expenses. Think about your upcoming needs for products, real estate investing training, coaching or services and fill them now. Review the categories of potential business expenses, and see if your expenses are “low” in any one area. It’s certainly never too late, for instance, to do some more advertising or promotion and attending real estate seminars to increase more income for your business.
4. Max Out Your RRSP
Registered retirement savings plans (RRSPs) are the government’s weak apology for gouging citizens on their taxes. You may as well use the bone they throw you and get the most out of this chance. When speaking about borrowing to buy investments, maxing out your RRSP is usually a sensible decision provided that you are able to service the loan in a reasonable period of time.
5. Donate securities to charity
Are you thinking of donating money this year? You’ll save more tax by donating some of the profitable stock in your portfolio. Any capital gain on a security that is donated to charity will be set to zero. And you’ll also be entitled to a donation tax credit.
6. Transfer capital losses to your spouse
If you have unrealized capital losses but no capital gains this year or in the past three years, consider transferring those losses to your spouse if they have capital gains that can offset the losses.
7. Review your portfolio for tax efficiency
Capital gains and eligible Canadian dividends receive more favourable tax treatment than interest or foreign income. Understanding type of income generated by your portfolio can help in reducing taxes payable on your portfolio.
8. Consider paying dividends
Paying salary and bonus can result in high tax bracket for business owners. Using dividends to pay the business owners can result in substantial tax savings
9. Creating a Holding Company
- Risk of clients and creditors suing the corporation, more legal and finance work
- Benefits of holding company
- Creditor proof excess funds of operating company
- Enables income splitting and tax free dividends from operating company
- Holding company will have more pre tax money to invest
10. Start a Family Trust
Family trust with spouse, children and holding company as beneficiary can provide multiple capital gain exemptions ( $ 800,000 life time capital gain exemption) if company is sold in future. Trust can also be used to further protect the assets and provide income splitting opportunities among family members
11. Child Care Expense Deduction
The Child Care Expense Deduction allows parents to deduct child care expenses incurred to earn employment or business income, pursue education or perform research. Generally, the lower – income spouse (or a single parent) can claim the deduction
The child care expenses dollar limits will increase by
- $1,000 – i.e., to $8,000 from $7,000 per child under age seven
- to $5,000 from $4,000 for each child aged 7 to 16 (and infirm dependent children over age 16)
- to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit, starting in 2015
12. Universal Child Care Benefit and Child Tax Credit
The Universal Child Care Benefit will increase to $160 per month (from $100 per month) for each child under age six. The government is also introducing a new benefit of $60 per month for children aged six through 17. Both these changes will take effect starting in January 2015.These changes will be reflected in monthly payments received starting in July 2015.At the same time as the increase to the Universal Child Care Benefit takes effect, the existing Child Tax Credit (available to individuals with children under 18) will be eliminated.
13. Should I sell my stock with losses before year end?
Did you report capital gains on your 2013, 2012 or 2011 tax returns? (If Yes) Then realize capital losses in current year (Year 2014) and carry back losses. You’ll be able to carry your capital losses back up to three years to offset gains in those years and recover taxes you paid.
Any tax advice herein is based on the facts provided to us and on current tax law including judicial and administrative interpretation. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. Should the facts provided to us be incorrect or incomplete or should the law or its interpretation change, our advice may be inappropriate. We are not responsible for updating our advice for changes in law or interpretation after the date hereof.