What are your biggest household expenses? Don’t forget this unnoticed expense.
It should be no surprise that the cost of shelter is the largest spending category for the average Canadian family. And we expect to see transportation as a top spending category too. We see our mortgage payments, property tax, car payments, fuel, and insurance bills fly out of our chequing accounts every month. We are conscious of these expenses.
Canadians often overlook the cost of income tax. We just don’t see it. That’s because income tax is deducted from our pay before we get it. Income tax is the second-largest spending category for the average Canadian family.
Statistics Canada issues annual reports on Canadian household spending. In 2014, the average Canadian household spent $15,000 on income tax (table 203-0021). If your household income is above the national average of $80,000 per year, then income tax may be your largest spending category.
We know that we can reduce shelter costs by shopping for a better mortgage and reducing energy consumption. We know that we can reduce transportation costs by driving less, or purchasing fuel efficient vehicles.
But, the opportunities to pay less tax in our lifetime are not as obvious. We don’t “experience the expense” (like paying rent or putting gas in the car). Also, the tools that are available to reduce this expense are not clear to us. Tax savings can be hard to find and we don’t go looking for them.
Before you file your tax return this year have a look at line 435 (taxes payable). That is how much tax you must pay. If you paid more tax than that over the year, you will get a tax refund. You might also want to compare this year’s line 435 with line 435 for last year to see if it changed and why. Review your deductions to make sure that you have thought of all of them. Review your tax credits to make sure that you have remembered those too.
Families with children or infirm dependants often miss credits or deductions. These can be difficult to identify and rely on complex criteria. I have found that people assume that they do not qualify for cost savings and miss the opportunity to claim them, or claim them incorrectly.
So, before you file your return this year, ask yourself:
* Did I take advantage of all the opportunities available to pay less tax? How do I know?
* What can I do now to reduce my tax bill for next year?
You are well on your way to keeping more of what you earn, if you treat income tax as just another household expense to manage. Paying income tax is part of the price we pay for the privilege of living in Canada. By managing income tax expenses, you get the same benefit, and keep more of your money.
About Colin Barry – Canfin Financial Group
Colin Barry is a Certified Financial Planner (CFP) who works with families and small businesses to plan their finances and make the most of what they have. Visit www.colinbarry.ca for more information. Fee for service financial planning and investments provided through Canfin Magellan Investments Inc. Insurance provided through Canfin Capital Group Inc.
