Are you satisfied with this year’s tax return?
Have you ever wondered why you get a tax refund?
At the end of this video,
you will going to know exactly
how to generate more TAX refund!
So you have more money back in your bank account!
Hey there! This is Thomas!
Better Mindset | Better Life!
Every year in April,
we are responsible for reporting our total income
and pay the amount of tax due.
But at the same time,
it’s our right to pay ONLY the amount that’s due
and reduce tax legally.
So In this video,
I will give you a step by step walkthrough
On how tax filing works
and where you can work on to reduce more taxes
But before we go,
I want to put a disclaimer first!
I am not an accountant!
This is not a video encouraging you to DIY your tax filing
And certainly not a video giving you any tax advice.
This is a video to let you understand how taxes work.
So make sure you do your own due diligence.
Let’s jump into it!
A lot of people are looking forward to their tax return
so they can spend on it.
Those money is not a gift from the government.
It's coming from your pocket.
If you are a 9-5 employee,
say your salary is $60,000
you should have $5,000 per month in theory.
But that’s never the case,
A portion of the pay cheque already advance to the cra account.
And usually the company you work at
will deduct a little more than it should be
In April, after you file the taxes.
Then CRA will refund the money back to you.
So first thing first. In order to maximize the tax refund.
We have to understand how does the tax filing work?
No matter you are hiring an accountant
or using an accounting software.
The goal is to fill out this bad boy here:
the T1 general form.
The T1 General Form is also called the Income Tax and Benefit Return
It is the document used by Canadians to file their personal income taxes
The form is a summary of all the other forms
you complete for your income taxes,
It reports all your income, deductions, tax credits, and more.
And then you can use it to apply for benefits
like the Canada Child Benefit, Old Age security,
the GST/HST tax credit rebate and more
Sounds very complicated right?
Let me break it down for you in a 3X3 steps
There are three major parts you need to complete for the tax return,
And there are 3 take away for each major part.
The first part is your total income
You input all sources of income in here.
And I simplify it into 3 different sources,
The first one I call it the active work income,
such as the traditional employment income,
self employment or the commission income.
Most of the Canadian’s bread and butter
The second one is the passive income,
such as rental income, spousal support,
the interest, dividend and capital gain on your investment.
The last sub category are the social benefits payout,
such as EI, Canada Pension Plan and Old age security.
I will also include the RRSP and Pension withdraw in there
They all come in various form of tax slips
and you should receive all of them by beginning of the year.
The next part to increase your tax return
is to find ways to reduce the total income legally
The CRA called it the net income and taxable income,
but I pretty much simplified it and called it as income deduction.
Because this is where you can ‘write off’’ your total income
I name the first category as the plan deduction
such as rrsp or pension deduction.
The amount of money your contribution to your RRSP
or Pension is in a 1:1 dollar ratio.
So if Tom’s income is $100,000,
he should be paying 30% income tax.
That leaves him to $70,000.
If he contributes $10,000 to his RRSP
Then his income is 90,000.
We keep it at 30% tax bracket,
that leaves him with $73,000,
and he still have $10,000 in his rrsp
The second one is the expense deduction,
such as business expense,
things that you have to keep your business going.
The other will be child care expense,
spousal support, if you are the one who is giving the support
Moving expense if you move 40 kilometers away because of work or school.
and there is one expense in this section.
Not a lot of people are aware of,
but you can generate more tax refund once you know about it.
I will come back to this in a bit
and the last sub category are your investment losses,
you can claim your capital losses on your investments.
But any investment gain or loss inside the RRSP
or TFSA will not trigger any tax implication.
After you finish all the reduction.
Then it becomes your taxable income.
The last thing to fill out in the T1 General is the tax credits.
Tax credits further reduce the tax amount
that you owe by a fixed amount
where the tax deduction reduces the tax amount you owe
based on your marginal tax rate.
The three key takeaways are.
1) tax credits can be either refundable or non-refundable
a non-refundable tax credits can reduce your tax
but will not give anything extra when the balance reaches 0
where a refundable tax credits can reduce
your tax amount to zero and further.
therefore, the CRA has to write a cheque back to you
For instances,
If Henry owed $1000 in taxes
and he had a non-refundable tax credit of $1,500
He doesn’t have to pay any tax but will not get anything extra
if Henry had a refundable tax credit of $1,500 instead
Not only he doesn’t have any tax owning,
but he will also get a $500 check from the CRA.
2) The common examples of non refundable tax credits are
the basic personal amount ($12,069 in 2019),
tuition, interest that you paid on your student loan.
Donation and more
There are not too many of refundable tax credit.
The most common one is the GST HST tax credit rebate
3) tax credits are more favourable to low income earners
If you are in high income tax bracket,
then it makes more sense to focus on tax deduction
rather than tax credits as it saves more in taxes
so there, after all your income,
tax deduction and tax credits are calculated.
The remaining balance will be taxed accordingly
to the federal and provincial tax system.
If you are an 9-5 employee
or self employed who prepaid the taxes .
After the tax filing in April,
the CRA realize they over charge you
so you can get a tax refund.
Vice versa,
if you did a lot of over time or you get a very nice bonus.
Then by April, The CRA will come in knocking at your door
Looking for their money!
A quick recap in here,
the 3x3 steps are the 3 things you need to know to file your taxes.
There is the total income source, income deduction and tax credits.
And there are 3 key takeaways for each section.
I encourage you after this video,
download a copy of the T1 general so you can refresh your memory.
I will put the link down below in the description box
Ok, remember I said there is a column in step 2
that not a lot of people are aware of
but it’s effective in lowering the taxable income.
It’s called the line 22100 carrying charge.
There are 8 things you can write off. But I just pick a few.
There is the advisor fee,
where you can write off your fees
when you hire a financial planner to give you money advice.
Or certain legal fees when facing spousal or child support payments.
There is the policy loan fee.
If you have a permeant life insurance that has cash value.
You can borrow against from it and the interest can be write off.
The last one is the interest that you borrow to invest.
It said you can write off the interest
if you the money that you borrowed produce
an interest and dividends investment.
For example, if I borrow $100,000 and invest,
the interest is at 5%, I can reduce $5,000 off from my income.
This will become really effective when combing with the RRSP strategy!
If you guys eager to know,
you can leave a comment and say
''I want to know more!’’
I will put it on my top priority
if I get enough comments on this!
This is Thomas!
Thanks so much for watching guys!
and be sure to like, comment, and subscribe
the videos if you found them useful
Your support really means a lot to me
If you want to learn how money works
and how you want to work with money,
then I will see you in the next video!
Bye guys!