Minimizing taxes is important, but it is essential to use all the legitimate methods to avoid underpaying or being guilty of evasion.
Methods to reduce taxes:
- Donating to a registered charity or political party.
- Offset capital gains with any available capital losses.
- Moving a stock from a cash account to a registered account may generate a capital gain or loss. Use this wisely: use any unused capital loss to offset a capital gain, or generate a capital loss to offset current or future gains.
- As much as possible, have income from savings come in the form of dividends rather than bank interest, including GICs. One way to achieve this with minimal volatility is with minimum rate reset preferred shares.
- Keep high yielding Canadian dividend stocks out of registered plans to take advantage of the dividend tax credit.
- Keep U.S. listed dividend paying stocks in an RRSP or RRIF. This allows receiving the full dividend without U.S. withholding tax (due to a tax treaty).
I've used StudioTax, a paid software, in the past and found it very good; the amount of tax that I had to pay was exactly as the software had calculated. Wealthsimple provides a free tax filing service.
The website TaxTips.ca has a page showing the tax rates in Ontario for various types of income. Note that the percentages below do not include the addition of the Ontario Health Premium which can increase the tax rates by up to 25%!
