While many people get excited about large tax refunds, all it really means is that you lent the government money throughout the year, interest free.
Say you are paid bi-weekly and every year you were expecting a tax refund of $5,200. Maybe this is due to set RRSP contributions, plus a stay at home spouse and a couple children. While it is nice to get all this money at once and make a lump sum mortgage payment, pay down consumer debt or put it in savings and investments, you lose out a bit by not having that extra $200 every two weeks.
With mortgages or other debt, paying $200 every 2 weeks will reduce your principle sooner so you pay less interest overall. For savings, putting money in every 2 weeks gives it extra time for the interest to grow, since it will be in up to a year earlier than if you wait to receive a tax refund. Investing every 2 weeks, instead of at refund time, will give you the benefits of dollar cost averaging, catching both the highs and lows to reduce your risk.
The first form you’ll need to complete is the TD1. Filing this form with your employer will allow them to adjust the amount of tax they deduct from your income for the following items:
- Child amount
- Age amount
- Pension income amount
- Tuition, education and textbook amounts
- Disability amount
- Spouse or common-law partner amount
- Amount for an eligible dependant
- Caregiver amount
- Amount for infirm dependants age 18 or older
- Amounts transferred from your spouse or common-law partner
- Amounts transferred from a dependant
The second form you’ll need to complete is the T1213. This form needs to be submitted to the Client Services Division of your tax services office. They will then send you a letter of authority to give to your employer. This will instuct your employer to deduct less tax from your income due to the following deductions or tax credits:
- RRSP contributions
- Child care expenses
- Support payments
- Employment expenses
- Carrying charges and interest expenses on investment loans
- Charitable donations
- Political contributions
thanks for the forms, I was not aware you could reduce your tax payment at source other than through group RRSP deductions.
Ray, I think the T1213 could benefit quite a few people through the RRSP contributions alone. You could actually increase a bi-weekly contribution by the increased amount on your paycheque. You wouldn’t even notice the difference as long as you’re not depending on the yearly refund for anything.
I always owe tax’s it usually a small amount 500-600 each year, but I would prefer to have my employer pay the right amount, how do I determine what amount I should be paying and what form do I use to change this?
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Can the T1213 be used to request a reduction in income tax deduction at source due to carryforward tuition, education and textbook amounts?