Summary of "Do This to Legally Pay LESS TAXES in Canada"

The video "Do This to Legally Pay LESS TAXES in Canada" presents key strategies and insights to help Canadians reduce their taxable income and pay less tax legally. Drawing from 12 years of financial planning experience, the presenter outlines fundamental concepts about the Canadian tax system, registered accounts, self-employment tax benefits, deductions, income splitting, and real estate tax planning.

Main Financial Strategies and Insights:

1. Understanding the Canadian Progressive Tax System

Marginal tax rates apply only to income within each tax bracket, not the entire income.
Example: Earning $70K in BC means paying different tax rates on portions of income in each bracket.
Tax refunds occur because employers prepay taxes on behalf of employees, often overestimating amounts.

2. Utilizing Registered Accounts to Lower Taxable Income

Work/Group RRSP: Employer-offered, contributions reduce taxable income dollar-for-dollar, often with employer matching (free money).
Personal RRSP: Opened individually, same tax benefits, contribution limit is 18% of previous year’s income, unused room carries forward.
FHSA (First Home Savings Account): For first-time homebuyers, contributions reduce taxable income, withdrawals are tax-free with no repayment required.
TFSA (Tax-Free Savings Account): Does not reduce taxable income but allows tax-free growth and withdrawals anytime.

3. Tax Advantages of Being Self-Employed

Can claim a wide range of business expenses (advertising, meals, office, equipment, vehicle costs) to reduce taxable income.
Home office expenses are more broadly deductible for self-employed than employees.
EI premiums are optional for self-employed, potentially saving ~$1,000 annually but losing EI benefits.
CPP contributions are doubled for self-employed (both employer and employee portions).

4. Common Tax Deductions and Credits

Child Care Expense Deduction: Claimable by lower-income spouse for daycare costs.
Turning Bad Debt into Good Debt: Using investment loans (e.g., home equity lines) to make interest tax-deductible.
Medical Expense Tax Credit: Claim expenses exceeding 3% of net income; can use any 12-month period ending in the tax year.
Donations Tax Credit: Combine spouses’ donations; better to claim when total exceeds $200 for higher credit.

5. Income Splitting Strategies

Paying family members (e.g., grandparents) for childcare creates deductible business expenses and potential eligibility for Canada Workers Benefit.
Spousal RRSP: Higher-income spouse contributes using their room to an RRSP owned by lower-income spouse, shifting future taxable withdrawals to the lower bracket.
Spousal Loan: Higher-income spouse loans money to lower-income spouse at CRA prescribed interest rate; investment income taxed at lower spouse’s rate. Requires strict compliance and ongoing fees.

6. Real Estate Tax Benefits and Planning

Principal Residence Exemption: Primary home sale gains are tax-free.
Property tax deferral programs in some provinces (BC, Ontario) can improve cash flow.
Rental properties generate taxable income but allow deduction of many expenses: operating costs, mortgage interest, repairs, depreciation (CCA).
Claiming depreciation reduces taxable rental income but triggers CCA recapture on sale, increasing taxable income significantly.
Depreciation strategy requires careful planning considering holding period, investment returns, and risk tolerance.
Claiming CCA disqualifies from "change of use" election, potentially triggering capital gains tax if moving back into rental property.

7. Emphasis on Getting Fundamentals Right

Advanced tax strategies are ineffective without proper financial basics.
Avoid common money mistakes to maximize tax savings.

Step-by-Step Methodologies Shared:

How to Use RRSPs to Reduce Taxable Income:
- Contribute to RRSP (work or personal).
- Reduce taxable income by contribution amount.
- Benefit from employer matching if available.
- Follow withdrawal rules to avoid unexpected taxes.
Self-Employment Expense Deductions:
- Track all business-related expenses.
- Claim eligible vehicle and home office costs.
- Understand EI and CPP implications.
Medical Expense Claim Timing:
- Aggregate expenses over any 12-month period ending in tax year.
- Claim in the year with higher expenses or lower income for better tax credit.
Income Splitting Using Spousal RRSP:
- Higher-income spouse contributes to spousal RRSP.
- Lower-income spouse owns the account and withdraws in lower tax bracket.
Spousal Loan Strategy:
- Higher-income spouse loans funds at CRA prescribed interest.
- Lower-income spouse invests funds.
- Lower-income spouse pays interest annually to higher-income spouse.
- Maintain proper documentation and compliance.
Rental Property Depreciation Planning:
- Calculate rental income and expenses.
- Deduct operating costs and mortgage.