In Episode 2, we briefly talked about taxes, identifying them as one of the two greatest money killers, (wealth enemies). However, just because they work against our wealth doesn’t mean that we should not understand them better so we can protect against them and minimize their impact. Or even better, have them work in our favor, right? After all, if we follow the strategies in “The Art of War” written by Sun Tzu (a Chinese military strategist and philosopher) who said "Keep your friends close and your enemies closer", we should become experts in tax matters.
When it comes to planning your taxes, your 'friends' are the good things in the tax code that can help you (opportunities: donations, benefits and credits). Your 'enemies' are the bad things, like changes in rules or things you might forget. It's important to stay informed and keep an eye on both the good and the not-so-good parts of tax planning. This helps you make smart decisions, stay on track with your money, and use taxes to work for your wealth.
More From Sun Tzu: Rules of War That Apply to Taxes
Rule 1 – Understanding the Terrain: Sun Tzu emphasizes the importance of understanding the terrain in both literal and metaphorical terms. In warfare, knowing the physical landscape is crucial, but in life, it can also refer to understanding the context, environment, and circumstances. Learn how taxes work and get ahead!
Rule 7 - Winning Without Fighting: Sun Tzu's ultimate goal is to achieve victory with minimal bloodshed. He stresses that the best general is one who can secure objectives without engaging in prolonged or destructive conflicts. Keeping compliance with the CRA will guarantee minimal bloodshed in a tax battle you might not win.
Rule 8 - Strategic Planning and Forethought: Sun Tzu underscores the significance of careful planning and forethought. The ability to think strategically, anticipate the moves of opponents, and plan for various scenarios is crucial for success. Plan for all your tax scenarios, the future can be complicated if you fail to plan today.
The Basics: Filing Taxes FAQs
Who should file taxes?
All newcomers to Canada. You are a “newcomer” if you are within your first year of arriving in Canada and you have a Temporary, Refugee, or Permanent Resident Status. Temporary Status includes STUDENTS, workers or temporary resident permit holders.
What do I need?
Your 9-digit SIN (Social Insurance Number) that you got from Canada Services when you first arrived and your tax slips.
Tax Slips:
· T4 from each employer
· T2202, if you pay tuition to a university or college
· T4E, if you received EI or parental leave payments.
· T4A, other taxable benefits, scholarships, bursaries, or grants Statement of Pension, Retirement, Annuity, and Other Income
· Summary of Income received in Cash (tips or gratuities, like Uber, Uber Eats, Rover, etc.)
When is the Deadline?
Taxes must be submitted by April 30th of every year, however, the earlier you file taxes the sooner you will get your tax returns, benefits & credits. Each personal income tax and benefit return includes the information from one tax year, January 1 to December 31.
Are there late penalties?
If you file your taxes after the due date and have a balance owing, you will be charged a late filing penalty. The penalty is 5% of your balance owing for the year, plus an additional 1% of your balance owing for each full month the return is late, to a maximum of 12 months. The CRA won’t charge you a late filing penalty if you are entitled to a refund.
Any benefits of filing taxes?
Yes, you are entitled to benefits and credits even if you have no income in Canada, however you can only get them if you file. Even if you only lived in Canada for part of the year, you have to file a tax return to continue receiving benefits and credits after your first year in Canada, even if you had no income. To continue receiving benefits and credits after your first year in Canada, even if you had no income.
11 Strategic Ways to Maximize Your Tax Return
In Canada, filing your taxes comes with several important benefits. Here are the most important strategic advantages:
1. Income Tax Refunds: If you've overpaid your taxes throughout the year, filing allows you to claim a refund. This is especially important for individuals who qualify for various tax credits and tax deductions.
2. Government Benefits: Many government benefit programs, such as the Canada Child Benefit (CCB) and the Goods and Services Tax Credit (GSTC), are income-tested. Filing your taxes ensures you receive the maximum benefits you are eligible for based on your income.
3. Tax Credits: Canada offers various tax credits for specific expenses, such as education, charitable donations, medical expenses, and more. Filing your taxes allows you to claim these credits, reducing your overall tax liability.
Once you have filed your first tax return you may be eligible to receive more tax credits and benefits:
· Canada Dental Benefit
· Provincial and territorial benefits
· Disability Tax Credit
· Canada workers benefit
· Child disability benefit
· Canada caregiver credit
· Canada training credit
· Home accessibility tax credit
· Children’s special allowances
4. Tax Deductions: Childcare expenses, moving expenses, tuition fees, health care expenses and home office expenses can be deducted from your Taxable income given the correct scenarios.
5. RRSP Contributions: Contributing to a Registered Retirement Savings Plan (RRSP) can result in a tax deduction. By reporting these contributions when you file your taxes, you can reduce your taxable income and potentially receive a refund.
6. Pension Contributions: Think ahead. Contributions to the Canada Pension Plan (CPP) are calculated based on your reported income. Filing your taxes ensures accurate calculations and contributions toward your future pension.
7. Provincial Benefits: Some provinces offer additional tax benefits or credits. Filing your taxes ensures that you are considered for any provincial programs that may be applicable to your situation.
8. Compliance and Avoiding Penalties: Filing your taxes is a legal requirement in Canada. Failure to do so can result in penalties and interest charges. Staying compliant by filing on time helps you avoid these financial consequences.
9. Contribution Room: Keeping up with your tax filings is essential for tracking your contribution room in tax-advantaged accounts, such as the Tax-Free Savings Account (TFSA) and RRSP.
10. Government Programs Eligibility: Filing taxes is often a prerequisite for eligibility in various government programs and subsidies, such as housing or education assistance.
11. Credit History: In some cases, having a history of filed tax returns can be beneficial for obtaining credit or loans, as financial institutions may request this information.
It's important to note that individual circumstances vary, and seeking advice from a tax professional can help ensure you take advantage of all the benefits available to you. Reach out to the author of this article by clicking here: https://www.maraluvega.com/contact
Filing is Your Social and Civic Responsibility
Paying taxes is a fundamental civic responsibility that supports the functioning of
governments and the provision of essential services. While paying taxes is a legal obligation, it also serves as a way for individuals to contribute to the collective good and ensure that essential services and infrastructure are available for the benefit of society as a whole. By paying your taxes you contribute to:
1. Redistributing Wealth: Progressive tax systems (like the Canadian Tax System) aim to redistribute wealth by taxing higher incomes at higher rates. This helps address economic inequality by providing resources for social programs that benefit those with lower incomes.
2. Ensuring Social Programs: Taxes support various social programs such as social security, unemployment benefits, disability assistance, and other safety nets. These programs contribute to the well-being and financial security of individuals and families.
After all, "In this world, nothing can be said to be certain, except death and taxes." - Benjamin Franklin
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