3 Tax Strategies That Will Help Keep Your Hard-Earned Money

“A piece of freedom is no longer enough for human beings, unlike bread, a slice of liberty does not finish hunger. Freedom is like life. It cannot be had in instalments. Freedom is indivisible, we have it all, or we are not free.” — Martin Luther King, Jr.

The history of taxation can be traced as far back as biblical times approximately 1000 B.C. in the book of 1 Samuel, chapter 8. The people of Israel wanted a king to “judge” them as all the other nations around them had a king. Samuel the leader at the time or the “judge” prayed to God and asked what should be done about the people’s request. Samuel than wrote his interpretations of what God had told him through 1 Samuel Chapter 8, 7-9.

1 Samuel Chapter 8, 11-18
“The king will draft your sons into his army and make them run his chariots. Some will be commanders of his troops, while others will be slave labours. Some will be forced to plow in his fields and harvest his crops, while others will make his weapons and chariot equipment. The king will take your daughters from you and force them to cook and bake for him. He will take away the best of your fields, vineyards and olive groves and give them to his servants. He will take a tenth of your harvest and distribute it among his officers and attendants. He will want your male and female slaves and demand the finest of your cattle and donkeys for his own use. He will demand a tenth of your flocks, and you will be his slaves. When the day comes, you will beg for relief from this king you are demanding, but the LORD will not help you.”

In present times we would be more than happy with the “king” or government only taking 10% of our hard-earned income. Over 3000 years has passed and we have become slaves to the very government we entrusted with the average Canadian paying almost 50% of gross income towards some kind of tax, wether income, liquor, gas, provincial, federal, etc.

Canada was a nation of no taxes for over 100 years until World War 1 and “The Business Profits War Tax Act” was born in 1916 to be shortly followed by the “Income War Tax Act” of 1917 both of which were suppose to be temporary but unfortunately remained in place.

1) The first tip to keep more money in your pocket is to NOT OVERPAY WITHHOLDING TAXES at your current job. Most people believe it is great to have a tax refund every year when spring rolls around, the fact of the matter is you have lent your money interest free to CRA. By adjusting your TD1 form optimally with an employer you may be required to pay less taxes. Another loop-hole is to request a waiver from CRA and relieve your employer of responsibility of the payroll taxes or estimate an earning amount under what you expect to make (don’t be to aggressive, i.e. under the BPA) on the TD1. The reasoning behind this is the hopefully owe nothing and be owed nothing, or even better, owe a small amount at tax time, effectively extending yourself a loan interest free from CRA provided you file and pay on time.

If you were to have a $3,000 return every year when you could have been saving $250 a month earning 10% returns (for illustration purposes) compounded over a working life time of say 40 years would leave you with $1,607,620 of which 1,487,370 is interest. That is a huge opportunity cost and I don’t know about you but I don’t like the idea of CRA having my million dollars.

2) Go offshore with your assets to protect yourself from both litigation and taxes. By operating under a trust or IBC (international business company) in one of the many countries that have no taxes like Bermuda, Cayman Islands, BVI, The Bahamas, Saudi Arabia, Qatar, Kuwait, etc. It is estimated approximately 32 trillion of the global wealth is held off shores by a former chief economist at Mckinsey. In the day and age of today it is as simple as setting up a bank account, although many people are un-aware and the CRA would like it to stay that way.

By going offshore you may limit or eliminate your taxes, increase your ROI, gain additional privacy and reduce litigation risk. You can even use further loopholes to pay no income tax at all. Canada Revenue Agency does not charge tax from the citizens but from the residents. certain tests must be met, no residential ties and must dwell in Canada no longer than 183 days and must not be considered a resident in another country with conflict of the Canadian tax treaty. By knowing the guidelines you may be able to shift assets (under the IBC) and meet requirements as most retirees that travel 6 months of the year more than likely do.

3) Start a small business, or become an independent consultant or contractor with an existing employer. There are three different entities that you may create, (ranked from least to most expensive) a sole proprietor ship, a partnership, and a corporation. This will increase the amount of income deductions your are entitled to and an example of this would be a home based business enabling you to write off utilities, internet, property tax, etc. while being able to write off travel expenses, meals, accommodation, and automobile expenses, not to mention the start-up costs themselves may be written off. Because in Canada each person is able to earn a basic personal amount of $11,038 before paying taxes, you could also pay yourself and your spouse or children a salary of up $11,038 each, TAX FREE. If and when you decide to sell your business thanks to recent changes in the tax code the small business tax exemption has increased from $500,000 to $750,000, allowing you to collect up to that amount TAX FREE.

“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.” – Mark Twain

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