Want an Income Tax Rebate...How You Can Save Money by Being Generous

By contributing to charities as a Canadian tax payer, you can legally claim thousands of dollars in Canadian Income Tax refunds.

Taxes in Canada are too high. We pay thousands of dollars every year in tax; it is estimated with all taxes included, approximately 50% of our wages are spent on taxes. That means you spend half of your working life just paying off your tax bill! The worse part of this if you are representative of the average Canadian when you reach retirement, you will have a painful savings account of around $5000. This is why more and more people are having to consider extending their working years or are cutting back on daily 'luxuries' in order to invest in their financial future.

Finding out these statistics sent my wife and me into a bit of a panic and we have spent the last few years, looking at ways we can increase our income and reduce our expenditure through an integrated financial strategy...rather than denial of what's really going on. One of the best way we found to achieve both has been using a tax avoidance strategy. These words often make people cringe away as they get tax avoidance confused with its very illegal counterpart "tax evasion"; which is withholding tax illegally or tax fraud. I discovered the concept of tax avoidance actually holds huge legal tax benefits for the average Canadian.

· Simply put - Tax avoidance is using the tax system to your benefit within the limits of the law; an RRSP would be an example of a tax avoidance program.

Make money from your taxes

Although, RRSPs are more highly promoted by the government they are in fact not the most profitable or the most generous way to save you tax. When you take part in an RRSP you are simply deferring your tax liabilities, whereas tax avoidance programs such as tax shelters, help you gain tax credits which have no taxable liability. The Canadian Revenue Agency (CRA) does not advertise that ALL Canadians are entitled to 100% Income Tax rebate IF they make charitable donations in an intelligent way. This really blew my mind at first so I will explain it as clearly as I can. I discovered tax shelters. This is NOT tax evasion, which is entirely illegal; this is tax avoidance, which is entirely LEGAL.

Quick Quiz for you -

· What is the difference between tax avoidance and tax evasion?

· Answer - ...around 10 years in prison! ;-)

· I didn't get that joke at first, but a lawyer explained to me that it's because tax evasion is illegal and will land you 10 years in prison...he told me that that's why it's so important to understand the difference between these 2 because they are not the same!

Basically tax shelters are ways, thought up by very smart lawyers and accountants, for you and me to legally benefit from positive rewards that exist in the Canadian Income Tax system. Under the terms of Canadian law we are all expected to save as much tax as possible, even if the tax man doesn't like it. This is the legal principle which allows tax shelters to function, much to the frustration of the Canadian Revenue Agency!

How do tax shelters work?

There are many different types of tax shelters, and as with any industry some are best avoided; you really need to do some good research before deciding on a program. After a lot (and I really mean a LOT) of research my wife and I decided with an Open Market Structure program. One of the main reasons for this decision was:

· This shelter uses fair market value, which means that, when an item is donated to charity, they do not get anyone connected to the shelter to say what the item is worth. An independent evaluator will do that job. Tax shelters which have been found to be legally non-compliant in court have not followed this principle.

Below I will try and outline the process as I understand it with a hypothetical example:

· I want to buy 100 laptops for children in India. So, I go to a bank and I ask for a loan for the money to buy the 100 laptops.

· The loan will be for 4 years and I will immediately pay off the interest for 4 years of the loan. With that loan, I then go to a technology company who gives me 100 laptops.

· I get an agreement from them that I can return the same item (100 laptops) back to them and get the full amount of money reimbursed to me.

· I now donate the 100 laptops to a registered Canadian charity and get a donation receipt for the amount I paid. I attach this to my tax return and get a 40% to 50% tax credit (depending on what province I'm in).

· 3 years and 1 day later, I ask the loan company to use my 1 year of remaining interest to go to the overseas market and buy 100 laptops at a much cheaper rate than I could get from the Canadian technology company.

· After returning these to the technology company, they refund me my original money which I use to pay back my loan in full. So I've now donated 100 laptops, received a donation receipt and paid off the entire loan.

· My tax benefit is bigger than my cost, which is the definition of a tax shelter according to the Income Tax Act of Canada.

Actually, the tax shelter program does all of this process for me, so all I really had to do was to pay the pre-paid interest on the initial loan.

It worked for me...

This is the system my wife and I used for the past 2 tax years and have received a nice big cheque from the Canadian Revenue Agency for our efforts! I chose this system after a lot of research, much of which I have included in my blog (details below), so please feel free to use this as a spring board for your own investigations!

Remember the only thing stopping you from being financially free is your dedication to being financially free; use financially intelligent solutions to increase your income and minimize your expenditure. Live the life you deserve!