The season for provincial and federal budgets is over and the good news is that most jurisdictions did not raise taxes.
The bad news is that most governments, aside from a few provinces, are financing increased deficits that will not disappear soon. A deficit will add to the interest expense line, removing dollars from new programs.
As well, the federal government removed some popular tax credits, such as the children fitness and arts tax credit.
The wonderful new goodies promised in the federal budget, such as billions of dollars for items like child care, will only kick in before the next election. No cost is shown now but they will eventually have to be paid out of tax revenue.
Another concern for government finances is the aging Canadian population. Retired people tend to have lower incomes and that means they pay lower taxes into federal and provincial coffers.
Economic growth will likely not be able to pick up the slack so either taxes will have to rise to compensate or some of the promised goodies will have to be substantially reduced or disappear.
There are programs that allow people to reduce their tax bills.
The most popular and widely used tax incentives are registered retirement savings plans and tax free savings accounts.
RRSPs provide an immediate tax reduction benefit when you contribute and tax deferral on capital growth and interest. TFSAs, on the other hand do not provide an immediate benefit but do protect capital and interest growth and withdrawals are tax-free.
Most Canadians live near the border with the United States and often shop when travelling there. Many U.S. border communities offer to take the Canadian dollar at par while charging a significantly lower sales tax rate than our GST.
Canada’s Tax Act allows each of us to bring back $750 untaxed after a limited stay in the U.S.
For farm families with small children, there is the child-care expense deduction. If you are trying to start a family or increasing the size of your family, there is the adoption expense tax credit.
There are other tax reduction and incentive plans as well:
- For students in postsecondary education there are scholarship and bursary exemptions and student loan incentives.
- For families struggling with disabled children there is the child disability benefit.
- For seniors or the disabled there are caregiver amounts and disability tax credits.
Seniors still have one of the most powerful tax planning strategies with pension income splitting. This provides the equivalent of almost filing jointly with your spouse so you can smooth income by reducing the higher tax brackets.
For those looking to buy their first home, whether it is in the city or country, there is the first-time home buyer’s tax credit. There is also the RRSP home buyer’s plan to assist with down payment if the conditions are present.
The family farm corporation or the farm land may be transferred to the next generation virtually tax free while enjoying a capital gains deduction of up to $1 million.
The Tax Act has a host of deductions. Be familiar with them. It is your right to use them.
Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: firstname.lastname@example.org or 800-265-1002.