Tax planning in Canada means understanding CRA rules. Here are some things you can do to help manage your finances and make tax returns easier. These tax-planning tips for the CRA will help but be sure to consult a tax professional before making any decisions.
Each province and territory has its own form book. Different taxes and rates apply depending on where you live. Resident status depends on where an individual normally lives, even if they are often away.
In addition to any employment income, earnings from the following sources must be reported on an income tax return:
Each of the above sources corresponds to a specific form or schedule. For example, taxable capital gains or losses from the following sources are reported on Schedule 3:
Some experts recommend registering for a personal CRA account. It can be an excellent resource for tax planning and retirement planning. The online service allows taxpayers to track their finances by showing information including:
Users can also update personal information, and apply for credits such as child benefits.
Some investors may have heard of "tax-loss harvesting." This is an attempt to reduce taxes owed on capital gains from profitable stocks, by selling underperforming ones and reporting the loss. While the move may result in tax savings, it's a poor overall investment strategy.
In Canada, if a gift is given in the form of cash, there is no limit on amounts and the gift is not taxable. If a gift is made in the form of something that has gone up in value since initial purchase, such as mutual funds, then it is taxable. If a gift is made in the form of property, such as a house, then capital gains taxes apply. Gifting property to family in lower tax brackets can mean tax savings.
The CRA advises keeping complete and organized records, in order to:
Without sufficient proof, the CRA may calculate your income by other methods. The CRA may also disallow deductions or credits claimed. Most records and supporting documents should be kept for six years. The six years begin at the end of the tax year the records cover.