Filing your personal income tax return every year can feel like a chore – especially when you’re trying to figure out if you’ll have an outstanding balance to pay. There are ways, however, to potentially bring down your tax bill.
According to data published by the Canada Revenue Agency (CRA), there were approximately 31 million tax returns filed for the 2022 tax year and over 17 million refunds were processed. If you want to increase your chances of receiving a refund, or lower the amount of tax you could owe, it’s important to understand the possible ways to do so.
Whether it’s through good record keeping, Registered Retirement Savings Plan (RRSP) contributions, or claiming relevant tax credits, here are some tips on how to possibly lower the amount of tax you could owe.
Keep receipts
It sounds simple but one of the most important parts of filing your personal income tax return is good record keeping. Throughout the year, keep receipts for things such as home office expenses, moving expenses, digital news subscriptions, and tuition fees for an educational institution.
That’s because without the receipts from such expenses or purchases, it becomes challenging to gather the required information needed for filing your tax return. In order to possibly bring down your tax bill and take advantage of credits, deductions, or expenses you might qualify for, you always need the documentation to prove it. (We’ll get into some of those credits and deductions below.)
RRSP contributions
A Registered Retirement Savings Plan (RRSP) allows you to hold a variety of investments, such as cash, mutual funds, and guaranteed investment certificates (GICs).
Contributions to an RRSP allow you to reduce the amount of your taxable income, provided you don't exceed your contribution limit and meet the annual contribution deadline – which was Feb. 29, 2024 for the 2023 calendar year.
As you might know, the higher your taxable income is, the higher your tax bracket and marginal tax rate. (You can read this TD Stories article here to learn more about tax brackets and tax rates.) This is why lowering your taxable income could help reduce the amount of tax you pay.
Using a very simple example, if you earned $50,000 during the tax year and contributed $10,000 into an RRSP, your taxable income could be lowered to $40,000, and tax would only be payable on that amount.
As mentioned, it's important to note that RRSPs have a contribution limit each calendar year, and you want to avoid over-contributing as there is a penalty for doing so. For more information on RRSPs, please visit the CRA's website here.
Be aware of other tax credits and deductions
Did you become a parent last year? Help look after a family member who has a disability? Move across the country? There are many different tax credits and deductions available to Canadians depending on their circumstances and/or life stage.
Some available tax credits include the Canada caregiver credit, credits for new parents, the First-Time Home Buyers’ Tax Credit, and the tuition tax credit.
When it comes to tax deductions, if you're self-employed you might be able to consider deductions for freelancers. If you have experienced any investment losses, you could possibly write off those losses. Or if you moved to study in a post-secondary program, you might be able to claim a deduction for moving expenses. (You can read more about education deductions and credits on the CRA's website here.)
By understanding the available tax credits and/or deductions you could claim on your tax return, you might be able to lower your tax bill and/or possibly receive a tax refund. Please visit the CRA’s website here to learn more about tax credits and deductions.
Charitable donations
Donating to a charity isn’t just a kind thing to do, it could help lower your tax bill, too. By donating to a qualified organization during the tax year, as defined by the CRA here, a tax credit could be claimed based on the eligible amount of the donation.
You can read more about giving to charity and its tax implications on the CRA’s website here.
For more information on tax filing, visit the CRA's website here or speak to a tax professional.
This article is for general information purposes only and is not to be relied on for any kind of professional tax advice. Ensure that you obtain specific tax advice from a qualified & licensed professional for your unique financial circumstances.