Tax Saving Plan for Employed People
Employed people have less scope for tax savings as compared to self-employed people.
If you are currently employed, the income and benefits from and related to your employment are taxed and you cannot claim any deductions against employment income except that are specifically allowed by the system.
Here are some taxes planning techniques which can lead to save taxes:
•Arrange to get nontaxable benefits: There are some employment benefits which are not taxable like contributions to a registered pension plan, contributions to a group sickness or accident insurance plan, contributions to a private health services plan, all or portion of the cost of free or subsidized school services for your children.
•Ask to have your source withholdings reduced wherever possible: In any situation where you expect to receive a refund after filing your return, you should review the form which you file with your employer and seek to have source with holdings reduced. If you get a refund, that means the CRA has been holding your money and not paying you interest on it for many months. It is better you can send a cheque to the CRA at filing time so that you can use that funds in the meantime.
•Pay interest owing on loan from employer by January 30 of the following year:
If you receive a low interest -free loan from your employer, you are considered to have received a benefit from employment. The benefit is set at the Tax Saving Plans rate of interest minus any interest you actually pay during the year or within 30 days after the end of the year. This will provide you with a cash flow advantage.
•Consider employee’s profit sharing plans for cash flow purposes: there is no source withholding on the amounts paid by the plan to you. Careful timing of the employers’ contributions and the plan’s disbursements can give you better cash flow than would a straight bonus payment.
•Transfer retiring allowances to an RRSP: If you transfer the entire retiring allowance into an RRSP, the legal fees will never become deductible. When you take payments out of the RRSP, they are no longer considered a retiring allowance.
•Claim the employment tax credit to help cover your work related expenses: Employees can claim a 15% tax credit to help cover their work related expenses.
•Employed trades people can claim the deduction for the cost of new tools: If you are an employed trade person and you must use your own tools on the job, you can deduct the portion of the cost of new tools.