Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Christopher Liew, CFA

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published March 27, 2024 8:15 pm EDT

Nearly everyone earning income dreads the tax season. It’s the worst time of the year because you will see how much the taxman takes away from your gross income. Fortunately, there are ways or strategies to keep more of your money and give up less to the Canada Revenue Agency (CRA).

Know available tax breaks, credits, or deductions and benefits

The online filing of 2023 tax returns began on February 19, 2024, and the deadline for most taxpayers is April 30, 2024. It’s also the payment deadline if you owe money to the CRA. The basic personal amount (BPA) applies to all taxpayers.

For 2023, the maximum BPA has increased to $15,000 from $14,398 in the previous taxation year. However, many tax breaks, credits, deductions or benefits are available depending on an individual taxpayer’s life situation. Visit the CRA website to know them all, including the Canada Child Benefit (CCB) and others you can claim.

Utilize tax-free or tax-deferred accounts

Utilizing the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP) is a year-round tax strategy for Canadians. Assuming you use the $7,000 limit for 2024 to purchase shares of the Canadian Imperial Bank of Commerce (TSX: CM), the dividend income in a TFSA is tax-free.

At $68.32 per share, the $64 billion bank pays a hefty 5.27% dividend. The $7,000 investment will generate $368.90 quarterly tax-free income. CIBC, Canada’s fifth-largest bank, has been paying dividends since 1868 and has raised dividends yearly since 2012.

RRSP contributions lower taxable income. For 2023, the annual limit is $30,780 or 18% of earned income in 2022, whichever is lower. The deadline for RRSP contributions is generally 60 days after year-end. Those who contributed on or before February 29, 2024 claimed tax deductions.

Furthermore, money growth in an RRSP is tax-free. Any investment in an RRSP grows tax-free until you withdraw the funds. Some savvy users withdraw funds during the sunset years or in retirement when the tax rate is low due to lower income.

Assuming you invest in Fiera Capital (TSX: FSZ) and hold the high-yield dividend stock in your RRSP. At only $8.36 per share, this $878.7 million independent asset management firm pays a mouth-watering 10.4% dividend. A $30,780 investment will generate $3,201.12 annually.

Fiera Capital thrived amid uncertain headwinds and a challenging economic environment. In 2023, net earnings soared 130.6% year over year to $58.5 million; the $161.7 billion assets under management (AUM) at year-end represents a 2% increase from a year ago.

Jean-Guy Desjardins, Fiera Capital’s board chairman and global CEO, said the company started 2024 with a solid growth plan and increased sales and distribution resources. The firm will also develop new business opportunities and enter new markets.

Income splitting

The CRA allows income splitting through a spousal RRSP. This scheme is tax-effective and an opportunity to realize tax savings. A higher income spouse can transfer funds to a lower income spouse to have more investment income. Some retirement planners say the spousal RRSP is an income equalizer in retirement.