Worker A – “I can’t wait for my tax return this spring, I could really use that thousand bucks right now”
Worker B – “Are you serious? You let the government take an extra thousand bucks from you when you didn’t have to?”
Worker A – “What are you talking about, I didn’t have any choice, it just comes off my cheque every week. Besides, I like having a big cheque to look forward to.”
Worker B – “Suit yourself , I’m just going to continue to let my money earn interest for me in my bank account, instead of in the government’s.”
If you’d rather be “Worker A” (and there are actually a couple of valid reasons for making that choice) then you can probably click through to another article more to your liking. If you’re interested in keep your own money instead of lending it to the government for free for a few months, then you should probably read on.
When you start any job in Canada, the employer is supposed to provide you with TD1 forms for your province/territory in addition to the one that is Canada-wide. This form has several questions on it. They mostly revolve around what tax credits you will be entitled to. This determines how much tax you are likely to pay for the upcoming year, and consequently how much an employer is supposed to take off your cheque and remit to the government. The credits and deductions on a TD1 form that can be claimed are:
1) The basic personal exemption (everyone gets this)
2) Your age amount (for people 65 or older)
3) Pension income amount
4) Amount for children under 18
5) Amount for caring for an infirm adult
6) Spousal amount
7) Tuition, education and textbook amount (the one I’ve used the most)
8) Medical amounts (depending on your income and expenses)
9) Caregiver and disability amounts if you care for a dependent who is sick and/or disabled.
Now it is definitely in your best interests to take a couple minutes and make sure you get all of the available credit and deductions that the TD1 offers, because who really wants to give up more of their paycheque than they have to right? The T1213 form allows you to take the process of keeping your own money in your pocket one step further. Basically what this form is meant for is to allow someone that knows they will be getting money back on their taxes to get at it sooner.
Technically the T1213 form is a “Request for a Reduction in Tax Withholdings”. If you will be spending money on the following expenses that are tax deductible or eligible for a tax credit, you can get your hands back on your money a lot faster:
1) Pre-authorized RRSP contributions (you will need a copy of the agreement you signed with your financial institution to make this happen)
2) Employment-related expenses (you’ll need to fill out for T200 or form T777 in this case)
3) Charitable donations
4) Child care expenses
5) Public transit expenses
6) Fitness and Arts tax credits
7) Other common tax deductible costs like moving expenses or the interest on loans taken out for investment purposes.
For options 3-7 you may be asked to provide the relevant supporting documentation as proof.
After you submit the forms to the CRA, you should be getting less taken off of your cheque in about six weeks. Just remember that you won’t be getting that nice little spring time bonus this year after tax time. I probably shouldn’t even call it a bonus because the truth is that many people already struggle to understand the fact that the government is not paying them that money, it is merely giving them back money they never should have taken in the first place.
Now, while I prefer to keep my money in my bank account, there is an argument for people to stick with their current penchant for waiting out the big refund. The best reason I can think of for this is that many people would allow a fairly minor weekly increase in their paycheque to impact their spending habits, and would likely watch the increase in pay slide right through their fingers. By comparison, when a big cheque comes from the government in the spring, I believe it increases the chances that a person will choose to do some good with the money such as put it in a savings account (preferably a tax-advantaged one). If you are just starting to get the hang of saving and budgeting, this “forced savings” as the government likes to call it might actually be in your best interests until you’re more comfortable handling your own money on a monthly basis.
I’ve told a few people about this option, and while they were very surprised and enthused at the idea of keeping more of their tax dollars, they never followed through with actually filling out the forms. I guess any tax-related stuff is just too intimidating for many folks who were never given much education on it when they were in school or from their parents. Have any of our readers actually taken the steps to fill out a T1213? When I did it, it seemed relatively easy and the CRA hasn’t ever raised any concerns. Now that you know about the form, do you think you’re very likely to file one? Why or why not (sorry for prying, I’m just curious as to what would stop someone).