Canada Money CA

Income taxes are among the biggest expenses you have to pay during your life. Canadian citizens may very well pay as much as almost half of their annual income back to the government every year. Luckily, there are many tools you can use for managing your finances in a way that you’ll end up with significant savings and cut your taxes dramatically.

A large part of tax savings strategies deal with spreading your earnings through your inner family network and thus getting the benefits of lower tax brackets. In this group of tools you’ll find some very interesting possibilities such as:

• Family Loans & Accounts Structuring
• Own & Spousal RRSP Contributions
• Claiming Home Office & Deducting Home Expenses
• RESP Contributions
• Medical Contributions
• Employing family members
• Donations to Charity

From 2009, there’s also a new tool in effect called Tax-Free Savings Account (TFSA). It is similar to an RRSP account, but with some significant differences. For example, withdrawals are non-taxable and they don’t affect other government benefits. On the other side, deposits are non-deductible either. There’s a maximum cap of $5000 for the savings every year, which translates to significant savings over the span of multiple years.

Life insurance products also offer significant advantages and can be useful tools for lowering your taxes and paving the way for maximizing wealth.

There are a number of benefits of using it over other forms of investments, for example traditional RRSP accounts and other assets such as stocks.

• No risks involved: the minimum-guarantee percentage will keep the policy profitable under all circumstances. Life insurance therefore makes sense as one of your primary long-term investment tools.
• No probate fees: since it is a liquid asset, it’s one of the best ways to pass on wealth to the next generation in your family. In the event of your death, they don’t have to pay any additional probate fees and there’s no tax liability. In provinces like Ontario, these can total up to very large amounts – you’ll be able to prevent these unnecessary expenses.
• You don’t pay any taxes on the proceeds. Depending on your insurance package, your savings grow sheltered from taxes and you can also use accumulation funds to offset your future premiums with pre-tax dollars rather than after tax dollars.
• Cash values inside policies can be accessed at any time within certain limits through a policy loan or partial surrender. Often, these financial tools can create the equivalent of a tax-free income stream. However, be sure to understand that straight cash withdrawals are subject to taxation. Consult your advisers first in any case.
• Donations and charitable giving in the form of life insurance policies are tax-deductible. These are little known options which can involve transfer of ownership to the charity, naming the organization as the policy beneficiary or replacing the donated assets with a new insurance policy that will not affect the inheritance you wish to leave. These options all allow you to give future gifts of significant amounts at modest costs in the present.

These tools are well known by most people speculating on tax cuts and often get advised first. When using them, you’ll need to know the projected amount of income taxes you’d pay before to see which options are the most effective in your individual case. For this, you can use online tools like Canadian income tax calculator.

As closure, it is important to understand that taxes are a complicated matter and they deserve professional attention. Be sure to consult your options with independent advisers first and make only informed decisions.

Lorne S. Marr, President of Lorne S. Marr Insurance Services Ltd. has been a practicing financial planner since 1993 having graduated from the University of Windsor with an MBA. Feel free to visit his business website LSM Life Insurance Canada.

Canadian Taxes FAQ:

Question: Canada Taxes?
Does a Canada resident have to pay tax on his income earned outside Canada, even if its tax exempt in the country where it has been earned.

Answer: Yes, a cdn resident is taxable on his/her income earned inside and outside Canada. Unless the tax treaty with that foreign country specifically provides a tax relief, the tax exempt income in the foreign country may also be taxable in Canada based on the Cdn Income Tax Act.

Question: How much would I pay in taxes in Quebec, Canada?
I currently live in the US and am considering a move to Montreal. I operate a home business, and all of my income is coming from US sources, but I have been told that Canada taxes all worldwide income. Then it seems that the US would give me some sort of tax credit for what I paid to Canada. I expect to make $25,000 before deductions. Does Canada have a similar system as far as self-employment taxes? Do they have a self-employment tax? What abouts would I have to pay for tax, including federal and provincial?

Answer: If you move to Canada and operate a home business, that is CANADIAN-source income, regardless of where your client resides. Only if you are a US citizen would you continue to file and pay US taxes, and receive a Foreign Tax Credit on your CANADIAN return. Yes, if you are a sole-proprietorship, you must pay CPP premiums yourself. This is equivalent to SE tax.

Question: If I go to work and live in Canada, what taxes would I have to pay?
Because here in the USA, I hear you don’t have to pay certain taxes for a few years if you’re not a citizen of the USA. Just wondering if Canada does anything like that.

Answer: There is no tax exemptions for non-residents or non-citizens in Canada. All migrant workers are obligated to pay taxes both before their payroll and after you received your payroll money.

If you do not pay the taxes the government can refuse entry back to Canada at anytime up to 5-10 years from the incident depend on how big the problem (but min.5 years). In addition they have the power to freeze your assets in Canada and if it is a large amount, they can take the money from US as well.

Anyway, yes you have to pay tax on everything you own and earn in Canada regardless of who you are. BUT if you are a:
-refugee working in Canada
-protected person under the Canadian international witness protection program
-some other form of federally regulated tax relief such as single parents, senior citizens, child tax benefits, etc
Then you do get a break from the tax.

Question: Does Canada have taxes? Any laws someone should know if considering moving to Canada?
Does anyone know any specific laws in Canada? Such as school tax, income tax, property tax, sales tax, etc? Are there any laws I should be aware of? Any information helps!

Answer: Yes, all of the above. School taxes are part of the property taxes home owners pay, at least here in Ontario.

Income taxes are based on your residency, and also if we have a tax treaty with the country you are coming from. Canadian residents are taxed on their worldwide income. Non-residents are also subject to withholding amounts, which differ depending on the tax treaty.

I’m assuming you’re planning on living here permanently, so you’d likely end up being taxed as a Canadian resident.

Question: How do you pay taxes when you sell stocks in Canada?
I want to sell some MSN stocks, I have these stocks with US finance company. I will send the stocks using this finance company services and my question is how I need to pay the taxes in Canada?

Answer: Regardless of where they are held, if you are a Resident of Canada, you will need to report the gain or loss of this sale on your T1 tax return, Schedule 3.

Question: I invested in a business in Canada but I live in the united states how would I pay my taxes?
Do I have to pay taxes in both country’s or just business tax in Canada and income tax in the united states. How would my taxes be?

Answer: “Invested in a business” is pretty vague. You definitely pay US taxes on everything. If you bought stock, you would pay Canadian taxes on dividends and interest, but not capital gain. If this is a partnership or sole proprietorship, you would file a return in both countries.

Question: Where to file taxes, Canada or the US?
I’m a canadian who has been working in the US since july of 2003 on a TN visa. I’m a registered nurse. I haven’t filed taxes in canada since I’ve left, and now I’m wondering if I should have? I’ve filed in the US though. I’ve never been employed by a canadian employer, having come to the US to work after I graduated from nursing school.

Answer: Under the US/Canadian tax treaty, generally, wages earned by a Canadian in the US are taxed by the US, not by Canada. There are some exceptions. I would check with the IRS.

Question: Does a teen working in Canada with a part-time job that made around $1000 last year need to file taxes?
I didn’t file it for the last working year, and I’m afraid something will happen, so I’m just making sure.

Answer: If you make any money at all, you need to file taxes. I once filed taxes for 42 dollars (I’m a student and quit my job). If you have any income at all, you need to claim it. You might get a little tax refund! It’s never too late to file it now. Just do it and they probably won’t care that it’s late. It only matters if you owe the government money, then you would get charged interest on the amount that was owed.