Most Canadians have made their peace with taxes; after all, taxes go into taking care of us all. But still, no one wants to pay more than they have to. As we move toward the income tax filing date, it’s a good time to figure out how much you can save on your taxes.
There are plenty of different tax credits available (depending on where you live), and they may help you receive a lighter tax bill.
Save more by sharing
If you are married and earning a CPP pension, you can split it with your spouse. This could put one of you into a lower tax bracket, and save you a significant sum of money on taxes. It’s important to understand that CPP sharing is different from the credit splitting that happens in case of a divorce or separation. CPP sharing is allowed for couples who are still married, and above the age of 65.
It also only creates a tax benefit when one spouse is earning more from CPP pensions than the other. How much of a split you can achieve depends on the joint contributory period, which is calculated based on how many years the couple has lived together, and when the older spouse turned 18. A couple with a joint contributory period of 40 years and CPP paycheques of $1,000 and $500 can get a CPP sharing of $800 and $700, respectively.
Save more by saving more
One of the major differences between TFSAs and RRSPs is that you contribute to your TFSA using your post-tax dollars. Any savings you put away in your RRSP are tax-deductible. So if you earn $100,000 in Alberta, your normal bill will be somewhere around $26,900. And if you max out your RRSP, contributing 18% of your earned income, you will receive a whopping tax deduction of $5,750.
Even if you put away half of that much, $9,000, you will save yourself $3,000 in tax dollars. And while many opt to build a tax-free nest-egg in a TFSA, with the right investment and allocation, an RRSP might turn out just as profitable, even after CRA takes a bite out of the income from your RRSP nest egg.
You can enjoy decent, dividend-invested growth for decades in a stock like Rogers Sugar (TSX:RSI). The company is currently offering a juicy yield of 6.63%. This would translate the $18,000 in your RRSP to a monthly income of $99.
The company hasn’t changed its payouts in the past five years, and even though the stock hasn’t shown much growth in the past, this year has been relatively good for it.
The company operates nationwide, leveraging its two regional names, Rogers and Lantic. The company has been providing cane-based sugar for over a century. Now, it also offers a range of authentic maple syrup products.
Smart use of the different investment accounts, TFSAs and RRSPs, is not only beneficial from a wealth-building perspective but from a tax saving angle as well. And with the right investments, you can build enough money, that even when the CRA takes its cut, you will be holding on to a substantial sum to sustain your retirement.
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Fool contributor Adam Othman has no position in any of the stocks mentioned.