Did you know that every time you get an income tax refund that you effectively gave the government an interest-free loan? They’re simply returning the over-payment that you have been giving them throughout the year. Wouldn’t it be better if you had that cash in your own bank account during that time, accruing compound interest? One way to do that is to fill out the T1213 form, which is called the “Request to Reduce Tax Deductions at Source for Year(s).”
In essence, this form informs and authorizes your employer (or employee) to reduce the regular tax deductions that are taken from each of your paycheques. However, there has to be a valid reason for this reduction and it is based on reduced income tax liability that you have due to several different types of contributions. You can use the T1213 form if you have pre-authorized regular contributions to your RRSP, regular child care expenses, regular support payments, employment expenses, or expected charitable donations, among other possible deductions from income and non-refundable tax credits.
The form itself, which is available on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/E/pbg/tf/t1213/, is just one page and it is very easy to fill out. You will need your full name, address, and social insurance number, of course, as well as contact information for your employer. This is going to be the contact person in human resources or accounting who is responsible for your payroll deductions. Depending on the nature of the deductions, you may need to supply supporting documentation too.
In the case of pre-authorized RRSP contributions, you will want to supply a copy of the payment arrangement contract from the financial institution. With employment expenses, you will also need to fill out Form T2200 (Declaration of Conditions of Employment) or Form T777 (Statement of Employment Expenses). For charitable donations or rental losses, you will also be asked for all supporting documents.
After submitting the form to the CRA, you may have to wait up to eight weeks before you start seeing reduced deductions on your paycheque. When you do, though, it means you have extra money in your pocket every couple of weeks. Just make sure you’re responsible with this cash, as you won’t be getting that big tax refund anymore!
How does this work into your financial plan? Speak with an advisor to find out.