Two things are 100% certain in Canada: Death and Tax
Understand you tax and benefits to avoid financial exploitations.
Tax season has come in Canada. Yes Canada is a high tax country but with higher tax comes better benefits from the government. No one will hand you the benefit unless you ask for it. Donald Trump pays less tax than a McDonald's employee because he gets to use the tax loopholes. The beautiful thing about the tax law in Canada is that you and Donald trump all are equal in the eyes of law. Today I will talk about the tax. This will be a boring read but a very important one. It can save you from big financial exploitation.
Understanding Taxable income:
First of all it is important to understand the tax bracket. This is a long and boring discussion. I am posting a link here. Please check it out to understand the tax bracket. In summary, you don’t need to pay a lot of tax if your income is low. Usually people earning less than 32k a year ( based on province) are seen as low income people. If your income is low no need to worry too much. Your tax will increase rapidly once you cross the 40k mark.
This table shows the percentage of your salary that goes towards the federal govt. 15% of anything you make under 55k will go to the federal government. If your income is 60k, you have to pay 15% of 55k plus 20.5% of the next 5000 dollars. Not 20.5% of the entire amount. This is a little hard to catch but a very important detail which I will use later on to my advantage. There will be additional tax from the provincial govt. Learn more about it here.
The only way to pay less tax is by reducing taxable income. The illegal way to do it is through hiding your income. Suppose you earned 60 but declared to the government that you earned 20k. Which many desi people fall prey to. Never do that. You will get away with murder but not with tax fraud in Canada.
Then how can I legally reduce my income?
The most common way to reduce your tax is through RRSP. This is a government registered retirement account. You can deposit up to 18% of your previous year income in a RRSP account and legally reduce your taxable income. For example, if your income is 60k and 18% of your salary is about 10.8k. Suppose you opened a RRSP and deposited 10k there. Now you can legally say I earned 50k this year. Don't tax me under the 20.5% bracket. Tax me only under 15% bracket.
The second easiest way to reduce your taxable income is through a FHSA account. This is only applicable to new immigrants who have not purchased a home yet. Each of the family members above 18 can deposit up to 8000 cad max every year. Going back to your 60k salary example, you deducted 10k for RRSP and 8k for FHSA, now your taxable income has become 42k. You are almost going under the low income category, which means the government will go easy on you. Your children will get need based scholarships since on paper you are needy. I mean you are not needy just pretend needy smart people. Don't forget to collect RRSP and FHSA contribution slips from the bank to be eligible for deductions.
You can deduct 15% of your tuition fee. For example if your tuition is 20k you can deduct 3000 dollars from your taxable income. Funded people get double dip. They get tax benefits even without paying any tuition. For example, My yearly tuition was around 6k. My university approved a 7500 scholarship for me. Every two weeks they sent me about 900 cad in my bank account. I was free to do whatever I want in theory with this money. I used the money to pay my tuition. Since I didn’t use this money to buy pot, as a thank you gesture the government gave me tax deductions for the next 3 years. This is more complex than that. I just tried to explain it in my way. You will get a T2022 tax receipt from your university. Before giving out money to the sucker accountants from H&R block or other similar service talk to your university tax help center. They will do your taxes for free.
There are other ways you can reduce your taxable income. If you have recently relocated to Canada you may be eligible for relocation assistance, childcare benefits, befit for work from home people etc.
If you are a self-employed person like an Uber driver you can deduct your car, fuel, or anything related to food delivery income. Self employment tax is a little more advanced tax strategy. Not talking too much here. But last year I got about 3500 tax credits declaring my YouTube as a self employment income. Anything that I used for my video content, like my camera, sound system, computers, team members salary, my dresses, online courses, furniture, anything that you see on my video screen was deducted from my self employment income. I was surprised to see the amount of tax credits.
For now My suggestion for you would be to go through the links. Collect you T$ from your employer, T2022 from your university, RRSP FHSA contribution slip from your bank then follow this tutorial to file your tax. This is completely free. I am assuming you are a student or are going to be a student in Canada in near future. Your taxes are still pretty simple. Try to learn the simple processes now. Once you start earning a lot more money this knowledge and experience of handling cash will reap its benefits.
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