Canadian Tax Deduction and Income Tax Information

Tax Reduction, Tax Shelters, and Tax Fraud

Tax Reduction

    So you can see there is nothing strange or unusual about finding ways to pay less tax in Canada. Everyone, from individuals, to professional accountants, to small tax preparation services, use the common husband / wife / children method of splitting and reorganizing the income we report in order to reduce taxes owed, among other techniques. This is legitimate tax reduction at the most basic level. But there are many other less common methods that can also be used to ensure that individuals and businesses are deprived of as little of their hard-earned income as possible each year. One other method is having a small home-based business that will allow you to write off some purchases as business expenses. If you already own a business, your accountant is probably taking advantage of this for you. This small-business tax deduction strategy is sometimes talked about on the internet as though it were a mysterious secret of the rich, when in fact it is about the simplest possible tax reduction method after the income-allocation method mentioned above. Corporations have a multitude of other ways to reduce taxes as well, and often enjoy a lower overall tax rate just by being a corporation instead of a sole proprietorship.

    There are many other opportunities built into the Canadian tax codes that are fairly simple, but are less known because they tend to only be used by wealthy people. Unfortunately, many accountants and financial advisors for the middle class have no experience understanding how wealthy people and their accountants approach tax planning. Because of this, there are many great tax reduction techniques that most Canadians never hear about, while wealthy people use them every single year.

    The concept of tax reduction often involves the difference between taxable income and non-taxable income. One way to address this is to move most or all of your income into a non-taxable (or lower tax rate) category. Another method is to reduce the taxable income you earn as much as possible in the first place. Again, there are many ways to accomplish these things.
    You have every reason, and every right, to retain as much of your own hard-earned money as possible instead of giving it away in taxes. Saving money on your taxes allows you to grow your business faster, if applicable. With money you might have paid in taxes, perhaps now you can bring on a new employee, or get a new piece of equipment you wouldn't have been able to afford. This would benefit your business, the new employee, and the company selling you the equipment. As an individual, reducing the amount you pay in taxes means you have more money to put back into the local economy. People with more money will spend more money, and will buy more products and services. Not to mention other things you could do with a larger income tax return, like an extra vacation or some home improvements.
    In any case, legally reducing the taxes payable on income has been accepted practice by individuals, businesses, accountants, and the government for decades. Canadians are fortunate to have a multitude of ways to reduce the taxes we owe, yet many of us don't take full advantage of the opportunities.

Tax shelters

    Tax shelters generally help you defer taxes payable to a future date, and rarely reduce the total amount of tax you owe. This is like an RRSP, where you can shelter huge amounts of money tax-free for decades, but still get taxed heavily when you withdraw the money. There are many types of tax shelters.
    Tax shelters are a perfectly legal, CRA approved concept, and have been around for decades. Some people confuse the term tax shelter with tax evasion, which is entirely different. Tax shelters are reported openly to the government through your tax return with all of your other information, whereas tax evasion means you purposely hide or fail to report some kind of taxable income. The two have nothing in common.

Tax Fraud

    There isn't much to be said here. Anyone ripping off either the government, little old ladies, or anyone else, will likely be caught, fined, and possibly go to jail. Unfortunately, sometimes illegal products and scams are cleverly disguised and sold as legitimate concepts like tax reductions or tax shelters, and this is where a good accountant or tax lawyer can help you understand what is being offered.

    If you are wondering if a tax plan or system you are being offered is legal or not, you should first have your accountant look over the situation. He or she should immediately be able to tell you if any strategy or product is legal or not, using current Canadian tax laws as a guide. Legal strategies don't try to avoid or evade taxes. There are many legal tax reduction strategies, and they all make use of standard tax laws and should be easy to understand. If your own accountant can't help, you may need to seek an accountant or tax lawyer who specializes in high-wealth individuals, who often require more complex tax planning than lower-wealth individuals. Such an accountant or lawyer will have more experience with uncommon products and strategies, and will be able to give you an opinion about what you've come across. And they may already be aware of the latest scams since wealthy people are often targets of fraudulent schemes.

Provincial Tax Information: