As Canadians, we love to hate two things: freezing winters and paying way too much in taxes—which can reach over 50% in the highest tax brackets! While I can’t do much about the weather, I can help you save on taxes. In this video, I’ll walk you through the five key categories we focus on with our clients to maximize their savings and reduce taxes.
- Saving taxes on Investments
- Income Splitting
- Maximizing Tax Deductions and Credits
- Retirement Tax Strategies
- Self-Employed Tax Planning
1. Saving Money on Investments
a) Registered Accounts
You’ve probably heard people say you should invest in a TFSA or RRSP. But do you really know how much of a difference these accounts can make for your wealth over time? Let’s break it down with a fun example.
Meet Mark, a 30-year-old with $30,000 to invest. He splits it evenly between a TFSA, RRSP, and a Non-Registered Account. Over 30 years, with a 7% annual return, his investments grow until age 60. With a 40% tax rate while working and 20% in retirement, how will each account compare? Let’s find out:
Account Type | Initial Investment | Future Value | Taxes Paid | Final Balance |
TFSA | $6,000 | $45,733 | $4,000 upfront | $45,733 |
RRSP | $10,000 | $76,123 | $15,224 at withdrawal | $60,899 |
Non-Registered (taxable) | $6,000 | $31,365 | Ongoing taxes on growth | $31,365 |
Comparing Mark’s Investment Accounts
TFSA: Mark pays 40% tax upfront, leaving $6,000 to invest. After 30 years of tax-free growth, his TFSA is worth $45,733, with no tax on withdrawals.
RRSP: Mark invests the full $10,000 tax-free upfront. After 30 years, his account grows to $76,123. Upon withdrawal, he pays 20% tax, leaving him with $60,899.
Non-Registered Account: Mark pays 40% tax upfront, investing $6,000. Annual taxes on returns shrink his growth, leaving him with $31,365 after 30 years.
The Takeaway
Tax-advantaged accounts like the TFSA and RRSP significantly outpace the non-registered, taxable account. The TFSA provides 45% more, while the RRSP nearly doubles the value, thanks to tax-free or tax-deferred growth.
For first-time homebuyers, the new FHSA combines the tax benefits of a TFSA and RRSP, offering even more powerful wealth-building potential.
b) Tax Efficient Investment Choices for Each Account
Knowing what to invest in for each account is just as important as contributing. Here’s how to minimize taxes and maximize returns:
Account Type | Tax-Efficient Investments | Gotchas | Comments |
TFSA | – High-growth stocks- Growth-focused ETFs | – Avoid U.S. dividend-paying stocks and ETFs (15% withholding tax, non-recoverable). | Ideal for long-term compounding without tax drag. Focus on Canadian or non-dividend paying international stocks. |
RRSP | – Bonds- Dividend-paying stocks- U.S. stocks or ETFs | – Early withdrawals are taxed at your marginal rate.- Must convert to RRIF or withdraw by age 71. | Great for deferring taxes on income-heavy investments. U.S. dividends are especially tax-efficient here. |
Non-Registered | – Canadian dividend stocks- Tax-efficient ETFs- Long-term stocks | – Interest income (e.g., from GICs or bonds) is taxed at the highest rate. | Use for Canadian dividends (Dividend Tax Credit) or investments with favourable capital gains treatment. |
Key Insights
1. TFSA:
TFSAs are a powerhouse for tax-free compounding but need careful planning. Avoid U.S. dividend stocks, as the 15% withholding tax reduces your returns. Stick with Canadian or non-dividend-paying international stocks instead.
2. RRSP:
RRSPs are fantastic for deferring taxes on income-heavy assets. They’re also the best place for U.S. dividend stocks since there’s no withholding tax here. Just remember: withdrawals are taxed as regular income, so plan strategically, especially as retirement approaches.
3. Non-Registered Accounts:
These accounts are flexible but the least tax-efficient. They work best for investments with favorable tax treatment, such as:
- Canadian dividend stocks, benefiting from the Dividend Tax Credit.
- Non-dividend-paying stocks like Berkshire Hathaway, where growth comes from capital gains instead of taxable dividends, deferring taxes until you sell.
Avoid interest-heavy investments like bonds or GICs, as they are fully taxed at your marginal rate, making them less suitable for non-registered accounts.
There are many other tax-advantaged accounts beyond the TFSA and RRSP, such as the RESP and others. I cover these in greater detail in another video where I discuss the ideal investment order in Canada—be sure to check it out!
2. Pay Less Taxes by Income Splitting
Income splitting is like sharing an umbrella in the rain—both partners stay drier by balancing the load. By shifting income from a higher-income partner to a lower-income partner, couples can take advantage of lower tax brackets and save thousands. Let’s dive into some of the best strategies, starting with.
a) Using Your FHSA
Let’s start with a strategy that’s flying under the radar, likely because the FHSA is still so new. You might be wondering—wait, isn’t the FHSA just for saving for a home? How could it possibly help with income splitting? Let me break it down for you.
How It Works: The high-income partner gifts money to the low-income partner, who contributes to their FHSA, avoiding taxable investments and gaining a tax deduction.
Example: Jerry gifts $8,000 to Elaine. Elaine contributes it to her FHSA, gets a $2,400 tax deduction, and they save $2,532 in total taxes.
Why It’s Effective: Immediate tax savings, tax-free growth, and flexibility to roll into an RRSP if the FHSA isn’t used for a home. Works best if the higher-income partner has already maxed out all their registered accounts.
b) Splitting Pension Income
Shifting pension income to a lower-income spouse helps balance taxable income and reduces household taxes.
Eligibility:
- Before Age 65: Only Defined Benefit Pension Plans (DBPPs) qualify.
- After Age 65: DBPPs, Defined Contribution Pension Plans (DCPPs), RRIFs, and LIFs qualify.
Example: Jerry earns $40,000 from his pension (30% tax). By allocating $20,000 to Elaine (15% tax), they reduce household taxes from $12,000 to $9,000, saving $3,000.
c) Spousal RRSP Contributions
Spousal RRSPs allow the high-income partner to contribute to the lower-income spouse’s account, deferring taxes and balancing retirement income.
Example: Jerry contributes $12,000 to Elaine’s RRSP, reducing his taxable income by $4,200. When Elaine withdraws funds at a 20% tax rate, they save $1,800 in total.
Pro Tip: Avoid early withdrawals within 3 years to prevent attribution to the contributing spouse.
d) CPP Income Splitting
Couples receiving CPP can split up to 50% of benefits, lowering their overall tax bill.
Example: Jerry shifts $3,000 of his CPP income to Elaine, saving $450 in taxes by taking advantage of her lower tax bracket.
Why It’s Useful: Simple and automatic savings for couples with different income levels.
e) Splitting Capital Losses
Offset one spouse’s capital gains with the other’s capital losses using superficial loss rules.
Example: Jerry’s $4,000 capital loss offsets Elaine’s $15,000 gain, saving $800 in taxes.
Pro Tip: Only applies to non-registered accounts, and it must meet compliance with CRA rules for timing and holding periods.
To explore these strategies further, visit our website and get a free copy of our guide, Income Splitting for Canadians, delivered straight to your inbox.
3. Maximizing Deductions and Tax Credits
Deductions and tax credits are like finding hidden treasures in your tax return—they directly reduce your tax bill or taxable income, putting more money back in your pocket. Knowing which ones to claim can lead to significant savings. Let’s start with..
a) Childcare Expenses
You can deduct eligible childcare expenses, which lowers your taxable income. For children under 7, you can claim up to $7,997 per child annually; for children aged 7 to 16, up to $6,748.
Example: If you’re in a 30% tax bracket and claim the maximum of $7,997, you would save $2,399 in taxes.
b) Moving Expenses
If you relocate at least 40 km closer to a new job or school, you can deduct moving expenses. Eligible expenses include transportation, storage, and temporary living costs. For instance, if you have $10,000 in moving expenses and are in a 30% tax bracket, you could save $3,000 in taxes.
c) Home Office Expenses
If you work from home, you may deduct a portion of expenses like utilities, rent, and internet. For example, if your home office occupies 10% of your home’s space and your annual home expenses are $20,000, you could deduct $2,000. In a 30% tax bracket, this results in $600 in tax savings.
d) Medical Expenses
You can claim medical expenses exceeding the lesser of 3% of your net income or a set threshold. For 2025, this threshold is $2,833. If your net income is $60,000, 3% is $1,800, so expenses over this amount are eligible. If you have $5,000 in medical expenses, you can claim $3,200 ($5,000 – $1,800). With a 15% federal tax credit rate, this results in $480 in tax savings.
There are a tonne of tax credits and deductions available, here is a list of most of them, you can pause it to see if any of them apply to you, and do research on if you can claim it yourself via the CRA website here:
Income Deductions:
- Registered Retirement Savings Plan (RRSP) Deduction
- Registered Pension Plan (RPP) Deduction
- Pooled Registered Pension Plan (PRPP) Employer Contributions
- Deduction for Elected Split-Pension Amount
- Annual Union, Professional, or Like Dues
- Child Care Expenses
- Disability Supports Deduction
- Business Investment Loss
- Moving Expenses
- Support Payments Made
- Carrying Charges and Interest Expenses
- Exploration and Development Expenses
- Other Employment Expenses
- Clergy Residence Deduction
- Northern Residents Deductions
Non-Refundable Tax Credits:
- Basic Personal Amount
- Age Amount
- Spouse or Common-Law Partner Amount
- Amount for an Eligible Dependant
- Canada Caregiver Amount
- Disability Amount (for self)
- Disability Amount Transferred from a Dependant
- Pension Income Amount
- Tuition, Education, and Textbook Amounts
- Tuition Amount Transferred from a Child
- Interest Paid on Student Loans
- Medical Expenses
- Donations and Gifts
- Home Buyers’ Amount
- Home Accessibility Expenses
- Adoption Expenses
- Digital News Subscription Expenses
- Volunteer Firefighters’ Amount
- Search and Rescue Volunteers’ Amount
- Canada Employment Amount
Refundable Tax Credits:
- Canada Workers Benefit (CWB)
- Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit
- Canada Training Credit
- Refundable Medical Expense Supplement
- Working Income Tax Benefit
- Climate Action Incentive
4. Saving Taxes in Retirement
Retirement planning isn’t just about saving money—how you withdraw and manage it can make a big difference in taxes. Here are some effective strategies to pay less taxes:
a) RRIF Withdrawal Strategies to Minimize Taxable Income
Mandatory RRIF withdrawals can push you into a higher tax bracket. Using your younger spouse’s age to calculate RRIF minimums allows you to withdraw less each year, keeping taxable income lower for longer.
- Example: If Sarah is 70 and her spouse is 65, using her spouse’s age for RRIF calculations reduces the minimum withdrawal amount, helping Sarah stay in a lower tax bracket and avoid OAS clawbacks.
b) Tax Credits for Retirees
Retirees can significantly lower their tax bills with these credits:
- Age Amount Credit: Retirees aged 65 or older can claim an additional $9,028 as a non-refundable tax credit. However, this credit begins to phase out for incomes exceeding $44,335 and phases out entirely at higher income levels.
- Pension Income Credit: Up to $2,000 of eligible pension income can be claimed, offering a federal tax credit of 15%. This credit is applicable to income sources such as RRIF withdrawals or employer pensions but does not cover CPP or OAS.
Example: Marjorie, aged 67, has a taxable income of $40,000. By claiming the Age Amount Credit ($9,028) and the Pension Income Credit ($2,000), her taxable income is reduced by $11,028.
c) TFSA and RRSP Optimization in Retirement
Strategic use of TFSAs and RRSPs can help manage taxable income and preserve government benefits:
- Use TFSA Withdrawals to Avoid Higher Tax Brackets:
TFSA withdrawals are tax-free, making them an ideal supplement to RRSP withdrawals.- Example: John withdraws $10,000 from his RRSP and $20,000 from his TFSA to meet his $30,000 income need, avoiding a higher tax bracket.
- Shift Excess RRSP Withdrawals to Your TFSA:
Moving extra RRSP funds into a TFSA reduces future RRIF withdrawals, avoids higher taxes, and provides tax-free growth.- Example: Sarah withdraws $60,000 from her RRSP, contributing $20,000 to her TFSA to reduce future taxable income.
d) Using Life Insurance as a Tax Saving Tool
Permanent life insurance policies, such as whole or universal life, offer tax-efficient ways to transfer wealth when you pass away.
How It Works: Policyholders can grow investments within the policy tax-free and leave a tax-free death benefit to beneficiaries.
Example: Sarah uses a whole life policy to grow $100,000 tax-free, which will transfer to her heirs completely tax-free.
Pro tip: This strategy depends a lot on your health, and the best time to get life insurance is while you are still healthy.
5. Tax Strategies for Self-Employed Business Owners
Being self-employed gives you some amazing ways to save on taxes, such as:
a) Claiming Business Expenses
Running a business comes with costs, but the good news is that many of them are tax-deductible. Think office supplies, marketing, business travel, professional fees, or even a portion of your vehicle expenses if you use it for work.
Example: If you make $80,000 a year and claim $20,000 in business expenses, your taxable income drops to $60,000. At a 30% tax rate, that’s $6,000 in tax savings.
b) Home Office Deductions
If you work from home, you can claim a percentage of your household expenses, like rent, utilities, and property taxes. The percentage is based on the space you use for business.
Example: Let’s say your home office takes up 10% of your home and your annual household expenses total $30,000. You could claim $3,000 as a deduction, saving $900 if your tax rate is 30%.
c) Hire a family member
Have a spouse or family member helping with your business? Pay them a reasonable salary for their contributions. This shifts income to someone in a lower tax bracket and saves your family money overall.
Example: If you earn $100,000 at a 35% tax rate and pay your spouse $30,000 (at a 20% tax rate), your taxable income drops to $70,000. This results in $10,500 in savings for you, while your spouse pays $6,000 in taxes on their income. Net family tax savings: $4,500.
Tax strategies are super important to help protect and grow your net worth. At Blueprint Financial, we’re here to help you keep more of what you earn with personalized strategies tailored to help you save on taxes, so check out our services on the website!