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youngandthrifty explains why she isn't interested in filling out the T1213 and is willing to give the government an interest free loan in lieu of the 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 RRSPs 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.

Update for 2017

While the T1213 form and process have remained largely the same since I wrote this article, my thought process and investing style has changed significantly.  Back in the day I preferred getting the large refund cheque all at once because it forced a savings strategy on me, but these days, with my automated contribution to Wealthsimple (the Canadian robo advisor I started with earlier this year) I have found a different way to guarantee that my savings and investment goals stay on track.  Now I prefer to keep my earned money in my pocket and invest it ASAP!  After all, the longer it is in there, the more time it has to grow right?  I have kept my account with Questrade as well, and enjoy watching that account grow and evolve.  (I’ve now switched to a basic two-ETF couch potato solution as opposed to my old dividend-investing ways.)   I still think that the majority of Canadians would be better off getting the large chunk of money all at once – and then making the decision to invest it all before they spend it (in other words – forced savings) is the better strategy given how spendy the average Canadian is.  However, as long as you have an easy-to-execute plan that you know you can stick to, getting your money into your investment account or online bank as soon as possible is a smart path to take.

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?

Article comments

Ken says:

Yes… but don’t forget the difference that the annual payment makes. Your annual RRSP/Charity donation of $1,000 could be claimed on each paycheque, therefore allowing you to deposit/donate more than $100 EACH MONTH (putting more than $1,200 into your RRSP/Charity)
The ANNUAL refund only matches the MONTHLY payments IF AND ONLY IF you put This Year’s refund into RRSP and Next Year’s refund into RRSP and so on…and then you lose out on 5 or six years of growth in your RRSP.
At 30% tax bracket, your $1,000 annually (83.33 monthly) gives you back $300.. but… if you file the T1213 and pay $119 per month, your actual cost is still only $83.33 per month, and at the end of the year, you have $1428 paid in,, (which equals 1000 +refund 30% (300) and then 30% on the second year (90) and then (27) in 3rd year and (8.1) 4th year and (2.43) 5th year….
I think it is better to get the extra $428 (or about 12% extra on the $1000 deposit) in my RRSP each year… than to wait and spend the $300 refund

M Dubois says:

I can almost put twice as much in RRSPs if I use the T1213 form. I don’t want to have problems making ends meet and then get a $15,000 refund at the end of the year.

Enzo says:

Have you considered the benefits of completing a T1213 form with respect to Old Age Security Recovery Tax ?

Enzo says:

I have been an accountant , tax consultant and financial planner .

I just wanted to mention a couple of points.

Firstly, I recommend filling out the T1213 and using the money for things that I want to do (such as enjoying nice meals, etc) or things that I really should be doing ( investing in RRSPs or TFSAs). Maybe even being active with investments whether I use a financial planner or not.

Secondly most financial decisions are not made in pragmatic mode but are really emotional decisions. The approach taken by the author of this article bears this out

Jaz says:

I’m curious as to why you switched from your dividend investment strategy to a CCP portfolio of only 2 etfs? My understanding is the CCP is usually 3-4 etfs (depending on which method you choose) split into CAD,US, and Intel Index equity funds. Would also love your views on why you switched over from dividends. My DCP plan is setup in a 30/30/30/10 splits in CAD/US/Intl equity, and Bonds. Then my TFSA was going to split into 50% dividends, and 50% VTI. Thoughts?

– Jaz

Interested Reader says:

The T1213 is commonly used by seasonal workers (such as students) so that they don’t pay taxes for 4 months of work. IF they make 10-15000 over the summer they will likely not pay any taxes. Some kids can afford to forgo receiving the taxes, and getting it at year end when you are cash poor might be a nice bonus. The timing of the payment can come too late for some, so be careful as making yourself cash poor can lead you into debt (credit card charges).

EclecticInvestor says:

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.

Barbara Davis says:

Yes, HR department usually does that thing. What we can do it is to fill it out the best we could so it will serve its purpose.

asm says:

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?

April says:

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 🙂

young says:

@April- Sounds like a good reason to do it! I would most likely get my act together once I have a kid too 🙂

CB says:

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).

young says:

@CB- It definitely is a brilliant move. I would definitely do it later on, I”m sure.

the cynical investor says:

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.

young says:

@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 🙂

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 🙂

young says:

@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.

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 🙂

young says:

@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).

SavingMentor says:

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.

young says:

@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.

Echo says:

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 🙂

Echo says:

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!

young says:

@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?