At some point when you’re wading through your tax return for the umpteenth time looking for ways to trim your tax bill, you are likely to hear a tiny internal voice whispering that maybe, just maybe, it’s time to get a little more aggressive. Why not claim your gym membership and magazine subscriptions as business expenses? (After all, you have to be fit and well-informed to perform your job.) Why not write off that European vacation as a research trip? (It certainly gave you insight into emerging trends in French wines and German beer.) Why not indulge in some of the fancy manoeuvres that the truly rich use to reduce their taxes?

The answer is that the taxman is a tough opponent. Despite what you may think, there are no gaping easy-to-use loopholes that you can use to make your taxes magically shrink. In fact, the system is designed to leave most salary-earning middle-income families with very little discretion when it comes to toting up their tax bill. Gym memberships, magazine subscriptions and European vacations definitely fall into the prove-it category. Unless you’re successfully self-employed and able to demonstrate that such expenses are an integral part of your business, the taxman isn’t going to be impressed.

Does that mean you just have to sit back and take whatever the tax authorities decide to dish out? Not at all. If you truly want to cut your tax bill, a few strategies allow you to substantially reduce the amount you pay. These strategies are perfectly legal, but they typically require professional advice to set up, and you should weigh the cost of the advice against the tax savings before deciding if the strategy is worthwhile. Some of these tax manoeuvres also involve hidden pitfalls that you must be careful to avoid. Still, if you truly want to cut your tax bill, these aggressive strategies may be just what you’re looking for.

Mortgage magic

The idea

Jim has a mortgage of $150,000 on his home. He also has an investment portfolio of $180,000. His accountant tells him that he can’t write off interest costs on his mortgage, but he can write off interest costs on loans he takes out for investment purposes. So Jim gets an ingenious idea: why not sell his investment portfolio, use the proceeds to pay off his mortgage, then borrow the same amount of money to buy back his investments? It seems to him that this shift should leave him with the same amount of debt he has now, but allow him to deduct the interest on his loans from his taxable income.

The pitfalls

This strategy is not only perfectly feasible, it’s actually recommended by some financial planners. However, if you’re going to give it a whirl, don’t skip any steps. For instance, if you have a portfolio of stocks you own outright, as well as an existing loan that you used to buy a boat, you can’t just start claiming that the loan was really taken out for purposes of buying the stocks. To make your loan tax-deductible, you have to actually sell your stocks and pay taxes on your capital gains (which can be substantial if you’ve held your investments for a long time). You then have to pay off your boat, take out a new loan and repurchase your stocks. And don’t count on being able to claim a capital loss for investments that have fallen in value since you purchased them. If you sell an investment at a loss and repurchase the same investment within 31 days, the tax department will assume you’re trying to create an artificial loss and deny your claim.

How to make it work

Wait until your mortgage comes up for renewal to avoid penalties. Follow all the steps to the letter — sell your investments, pay down the mortgage, and then borrow to repurchase the investments. If you sell your investments at a loss, make sure you wait at least 31 days before repurchasing the same investments, or buy something different.