Employed workers have fewer possibilities for tax savings compared to self-employed workers.
If you are currently employed, your employment and employment-related income and benefits are taxed and you cannot claim any deductions against employment income except as specifically allowed by the system.
Here are some tax planning techniques that can lead to tax savings:
• Arrange for non-taxable benefits: There are some employment benefits that are not taxable, such as contributions to a registered pension plan, contributions to a group sickness or accident insurance plan, contributions to a private health services, all or part of the cost of free or subsidized school services for their children.
• Ask to have your source with holdings reduced whenever possible: In any situation where you expect to receive a refund after filing your return, you should review the form you file with your employer and request that your source with holdings be reduced. If you get a refund, that means the CRA has been holding your money and hasn’t paid you interest for many months. It is best to send a check to the CRA at the time of filing so that you can use those funds in the meantime.
• Pay interest due on the employer loan by January 30 of the following year:
If you receive a low-interest, no-interest loan from your employer, you are considered to have received a benefit from employment. The benefit is set at the CRA’s current prescribed interest rate less any interest you pay during the year or within 30 days after the end of the year. This will give you a cash flow advantage.
• Consider employee profit sharing plans for cash flow purposes: there is no withholding tax on amounts paid to you by the plan. Carefully timing employer contributions and plan outlays can give you better cash flow than a direct bonus payment.
• Rollover Retirement Entitlements to an RRSP – If you rollover the entire retirement allowance to an RRSP, legal fees are never deductible. When you take payments out of the RRSP, they are no longer considered a retirement 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 workers can claim the deduction for the cost of new tools: If you are a employed person and must use your own tools on the job, you can deduct the part of the cost of new tools.
• You can claim reimbursement for GST/HST paid on deductible expenses from your earned income.