Taxes rarely cause excitement for anyone but complex systems analysts and accountants, but they are a fact of life. The rules are constantly changing, tightening, lightening and being compounded by other articles on seemingly unrelated forms. Don't despair; there are still simple ways for Canadians to limit their tax exposure. In this article, we will look at some of them.

Borrow to Invest, Save to Buy
The days of debt-free living are passing fast and almost everyone in the country is carrying some type of debt. Debt can, in a small way, help to reduce your tax bill if you incur the right type. A loan to buy a car, or that mahogany end-table you've had your eye on, is not the right type. A loan to buy an investment is.

The reason is that the interest on loans taken for the purpose of investing is tax deductible. The interest on all the other things you buy via debt is not. From a tax perspective, you are better off using cash or savings for these discretionary purchases and then borrowing to invest rather than the other way around; as far as your personal finances go, no debt is the best kind of debt.

Max Out Your RRSP
Registered retirement savings plans (RRSPs) are the government's weak apology for gouging citizens on their taxes. You may as well use the bone they throw you and get the most out of this chance. When speaking about borrowing to buy investments, maxing out your RRSP is usually a sensible decision provided that you are able to service the loan in a reasonable period of time.

Taxes and Investments
Some investments - such as stocks - enjoy preferential tax breaks on dividends and capital gains, whereas other fixed-income investments don't. Depending on your tax bill and the rate of inflation, holding your money in fixed-income investments that are exposed to tax may actually cost you money. If you are holding a tax-protected retirement portfolio and an income portfolio, consider keeping a smaller percentage of your fixed-income investments in the exposed portfolio.

Marriage Maneuvers
Income splitting with your spouse or contributing to his/her retirement account will help reduce your tax bill, especially if there is a large gap between your incomes. This requires professional help to set up to ensure that it will survive an audit.

Start a Business
Owning a business may allow you to write off your car, gas, home office, electricity, kids, and in some cases even cat food. This advice is thrown around quite a bit as a way to reduce your taxes. While it is true that a side business will help you reduce your tax bill, it is not for everyone. For example, farmers enjoy some of the biggest tax breaks out there, but they rarely make enough money to truly enjoy them. As with farming, creating a business that loses money will hurt your overall financial situation more than paying taxes does. If you have a business plan that you intend to profit from, go for it. If not, look for another strategy.

Keep Detailed Records
The tax code allows for a certain amount of back-filing in specific situations or when there has been a change to the rules. For example, if you have been working on a side project that creates income in the future, you may not be able to claim all the write-offs as you incur them. By keeping detailed records, you will be able to back-file and protect more of the income by claiming the proper deductions in retrospect.

The Bottom Line
Keeping track of what write-offs apply to your situation can be difficult. For most people, finding the right accountant is the most important step to reducing your taxes. All of the aforementioned strategies are legal, but your accountant will be able to look at your finances and tell you which ones are viable. Look for an accountant through friends and colleagues who have similar tax needs as your own. Most importantly, keep up-to-date with your tax situation and look for anything your accountant may not have thought of - accountants are human. The more you understand about your own tax situation and the ways to improve it, the better prepared you will be to utilize your accountant fully.

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