Why I won't be filling out a T1213 for my Tax Return

In case you didn’t know, the T1213 (entitled “Request to Reduce Tax Deductions at Source for Tax Year”) is a form from the Canada Revenue Agency that lets you take back the interest free loan to the government you give them every time you get a huge honkin’ tax return.

If you regularly contribute to your RRSP’s and you also regularly donate in the form of a pre-authorized contribution plan (like I have for my TD e-series funds), you regularly donate to charities or pay for child care costs, you can choose to forgo the big tax return at the end of the year and just get a bigger pay cheque bi-weekly or monthly or whenever you get paid.

Most people would want to get a bigger pay cheque because otherwise you are giving an interest free loan to the government (the government already takes so much, why would we want to give them even more?).  If they give you a loan (e.g. if you over-contributed to your TFSA) they ding you like heck, but when they do it to us, they just turn their back.  Sigh… C’est la vie :(

If you are interested in getting less taxes dinged each pay cheque, here are the steps you need to take in order to do so:

    Make sure you have a pre-authorized payment plan for your RRSP
  • Make sure you have all the slips and receipts etc. for your child care costs or your charitable donations that you regularly make, employment expenses you would normally fill out on your T777, interest expenses on investment loans, and even rental losses.
  • Find out who your human resources/ payroll deductible person at your place of work is, because you will have to give the CRA their contact information and and they can set it up through payroll to deduct less taxes of your paycheque
  • Fill out that T1213 form and send it in along with the documentation and send it in to CRA
  • Et voila, you will get less taxes taken off your paycheque in about a few week to months

The reasons why I’m not filling out the T1213:

I think this is a great way to get taxed less throughout the year, but to be honest (and feel free to judge me haha), I really enjoy my big tax refund at the end of the year.  I’m not sure why, perhaps it’s some sort of psychological defect of mine.  I like to plan how I spend the big tax refund and I like how I can use it to fill up my TFSA contribution room or to fill up my RRSP room for next year.  I know that if I got a bigger pay cheque throughout the year, despite my automatic ‘pay myself first’ deductions, I know I would be tempted to adjust things and adjust my budget, and I probably would contribute less to my TFSA and RRSPs (heck, it’s human nature, I suppose).

Another reason is because I’m afraid of commitment.  Although I have been contributing regularly to my pre-authorized payment plan for my RRSP for years, I like the idea of just stopping it if need be (or if life gets in the way of my regular contributions)… without having to fill out more paper work or talking to the human resources person again, or being on hold on the phone with the Canada Revenue Agency for eons.

Finally, because I get a lot of investment income slips, it can be unpredictable as to what my interest income is for the year, or my capital gains etc.  I don’t want to have to pay the Canada Revenue Agency for this and with the RRSP deduction, it would be a good buffer for all of this non-employment income I get, so I can avoid (God forbid) having to OWE the Canada Revenue Agency come tax time.

So my dear government, enjoy your interest free loan courtesy of me…for now.  I know I’m not being financial smart or prudent with this decision, but that’s what personal finance is about, right? It’s personal :) What works for me may not work for others.

Readers, do you use the T1213 form?  I wonder what the percentage of Canadians is that reduce their income taxes is, by this method?  Can you list any other pros or cons for the T1213 form completion?  Do you enjoy the big tax refund at the end of the year like me, or are you more pragmatic?

About

Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.

20 Responses to Why I won't be filling out a T1213 for my Tax Return

  1. Our HR department sends out the forms every December so I fill them out the best I can. We had a lot of changes to our tax situation in the last two years with a maternity leave and a dependent, so I thought it would be prudent to keep tabs on this and avoid any nasty surprises come tax time.

    I still got a $450 refund this year, so that wasn’t too shabby!

    • @Echo- That’s really proactive on the part of your HR department :) Ours doesn’t do that :( That’s really good that you have a bigger tax refund! Maternity leave and a dependent = more money back, no?

  2. Yes, in theory you should get more money back…but I just had it deducted at the source. The refund I got was from an RRSP contribution that I forgot I made back in March last year. That was my last RRSP contribution ever, which is why I forgot about it :)

  3. I feel exactly the same way you do about this. I know it makes no financial sense to not adjust my taxes at the source … but I don’t bother for all of the same reasons as you.

    • @SavingMentor- I guess not that many people fill this form out then (and I’m not alone, yay!), I think something that would help increase usage of the T1213 would be to have a workplace like Echo’s, where they ask you to fill it out yearly.

  4. Makes sense to do what works for you.

    Technically, owing money to the government should be better than waiting for a tax refund since you are essentially borrowing from the government while you owe whereas it’s the opposite when you get a refund :)

    • @The Passive Income Earner- Hmm that’s very true, owing the government is better than the government oweing you, but sometimes they are so darned persistent and nitpicking (case in point- oweing the government interest for over-contributions of the TFSA).

  5. If it makes you feel any better, I like getting a refund as well. We got about $2,000 back this year – all of it went to our new roof :(

    Not that sexy, but it the roof does look good. I need to take a picture and put it on my blog.

    Have a nice Easter :)

    • @My Own Advisor- It does make me feel better! Thanks for validating my approach. New roof is sexy and a good use of a tax refund! What did you end up picking? I remember you were considering different types of roofing material.

  6. As appealing as it is the prospect of a refund I have chosen to have the taxes deducted at the source.

    Not to mention that my first tax refund (a handsome one) was lost in investing in Uranium at its peak.

    Not that I’d make the same mistake the 2nd time (I hope so), but money now is worth twice (sort of) in 1 year.

    • @the cynical investor- That’s a good point- blowing the tax refund on an investment that might be risky isn’t a good use of the tax refund (I think Hawaii would have been better and more satisfying). I’ll keep that in mind when I get my tax refund. Maybe save a part of it for self-gratifying measures like towards my trip or something :)

  7. I first read about reducing taxes at source many years ago. I thought it was the most brilliant move ever. Investing that extra money on a monthly basis creates more wealth over the year than the total of a tax refund for me. Furthermore, I can use the extra money to max out both my RRSP and TFSA contributions without feeling a pinch and still get a refund next year!
    I’m earning interest, reducing the financial load on a day to day basis, and receiving higher income tested benefits (CTB). For those who don’t have the cash to contribute to their RRSPs, freeing it up through reducing withholding tax makes it possible. I’d much rather have the money in my hand today than tomorrow (or next April).

  8. I am going to do the form this year 2012, so that I can get more money..pay less taxes throughout the year to offset the costs of daycare. Daycare cost $900 per month and the Gov’t only gives families $100 Universal Child Care Benefit per month. I/my family will benefit more to receive this money now than at the end of the tax year. Just a thought for others who pay ridiculous childcare expenses. The form serves a good purpose for some of us :)

  9. How big is the big tax refund?.. Seriously…
    We have $11,000 as a tax refund ($7,000 + $4,000) coming our way next year. Is that big enough to do T1213?

  10. I see a large refund as a lost opportunity to pay down debt and/or invest.

    If one is worried – file the T1213 for a smaller amount and see how it goes. There is likely a happy medium where the tax refund is less but at worst, there will be a small tax bill.

    That’s where monitoring one’s investments as well as tax refunds over the last several years should give a reasonable idea what would be a good amount to try.

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