The Elephant in the Room
Government’s coffers or your pocket……..You decide
If you live in Canada you will probably agree that we are taxed to death and soon we won’t know the difference between death and taxes. I am an advocate for paying one’s fair share of taxes, after all, for the most part we do get value for our tax dollars in Canada, especially when compared to other countries in the world where citizens pay taxes and don’t see a fraction of the value that we enjoy here.
I do not believe, however, that anybody should pay more taxes than they are legally obliged to, and thought I’d use this forum to point out some tax advantages (some of which will disappear on January 1, 2017) that you can take advantage of now:
- Participating Whole Life Insurance – This strategy is a good alternative investment to, or can be implemented in addition to having an RRSP. It is an excellent retirement & estate planning tool because the funds grow tax free; however the tax laws relating to permanent life insurance policies will change on January 1, 2017, and the changes will restrict the amount of money that will be allowed to grow tax free in these policies. Many astute Canadians are taking advantage of this tax deferral strategy now because plans put in place before January 1 2017 will be grandfathered.
- Tax free Health Spending Account – HSA’s allow you to pay for medical & dental expenses including expenses not covered by traditional health plans (e.g. fertility & autism treatments) using pre-tax dollars and essentially converting these expenses into a tax free benefit.
- Life Annuity – Provides guaranteed income for life, however the taxable portion of annuities will increase significantly on January 1, 2017, so if you are thinking about purchasing an annuity now is the time to do it.
- Individual Retirement Plan – IPP’s essentially allow business owners and incorporated professionals (e.g. lawyers, dentists, doctors, paralegals, accountants etc.) to make contributions that are fully tax deductible to the employer and are a nontaxable benefit to the employee; and they can be set up for one or a group of employees. They can only be set up for “active” Canadian business corporations and the employee (who can be the owner of the business) must be a Canadian resident paying taxes in Canada. Saving using pre-tax dollars and withdrawing that money tax free is a better option than an RRSP.
- Tax Free Savings Account – Sounds like a no brainer, however, too many Canadians use their TFSA like a checking account, making frequent deposits and frequent withdrawals. A good strategy would be to use your TFSA as a retirement savings tool because every dollar earned is Tax Free. You can set up your TFSA to ensure that it pays you guaranteed income for life.
If you are thinking about paying less taxes legally, now is the time to spring into action and implement strategies that will keep more of your money in your hands rather than the Government’s coffers.
About the Author
Karl Marshall is President of Marmac Financial Services Limited, an independent insurance and investment brokerage. He lives in the Durham Region and on Saturday nights he hosts The Party Mix on G98.7 FM in Toronto. You may contact him via email firstname.lastname@example.org @marmacinsurance on Twitter or on Facebook.