The Tax System In Canada

We all pay taxes in some way or another. There are taxes of all kinds and paying them on time is actually important for the progress of our nation. But, at the end of the day, nobody wants to pay more than what is needed. We all want to save taxes and we all make efforts to figure out the best ways to do so.
In this article, I’m going to share with you some interesting insights into Canadian taxes so that you understand how much you actually need to pay and how you can save taxes in Canada.

Let’s start by understanding the taxation system in Canada. If you are a new business owner, this might help you get a better understanding of things. If you have a well-established business and you are well aware of the taxation system, you could skip to the next section.

Tax system in Canada

Canada follows a progressive tax system. There are multiple tax brackets under this system. As you move up the brackets, you pay higher taxes on the extra income.
However, this doesn’t mean that your annual total income will get reduced as you move into a higher tax bracket. It simply signifies that for every extra dollar you earn, you won’t keep as much as the first dollar you earned
Provincial tax works in a related manner. For most salaried people, income tax is automatically deducted from the paycheque by the company. When completing your tax return in April, you are just calculating to find out if you paid enough tax to the Government.

Tax refunds

If you didn’t pay full tax during the year, you’ll owe the government come tax time. When you pay excessive tax, you get a tax refund at the end of the year. Contrary to common belief, tax refunds aren’t actually a good thing for you. It simply means that you gave your money to the Government and got it gave without any interest.
To avoid such a situation, you need to work on reducing your taxes. You can do this through various deductions and credits.

• Deductions
  1. Deductions include childcare expenses, RRSP and employer pension contributions, and deductions related to business expenses.
  
  2. Deductions reduce your taxable income directly. Therefore, you need to make sure that you have deductions planned well in advance.
  
  
• Credits
  1. Credits include children’s fitness and art credits, spousal and child tax credits, tax credit for interest on student loans, tuition credit, caregiver credits, medical expenses, transit passes, donations, and first time home buyers credits.
  
  2. Credits reduce taxes directly and in many cases the value of the benefit does not fluctuate with your taxable income. This also has to be planned in the right manner to get the benefits.

It’s helpful to learn whether or not any of your current expenses are eligible for a tax credit or deduction. Also, if you can, try to time expenses you’d normally incur so that you can maximize your tax refund.
It’s also important to understand what tax credits and deductions you are eligible for. This will help you reduce your taxes thereby allowing you to save or spend more. Check out the various tax rates brackets to understand which tax rates you need to follow at your present business income level.