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Don’t give the tax man an interest free loan

Posted by on Feb 21, 2012 in Income Tax, Moneyville | 0 comments

By: Sheryl Smolkin

Read this article and comments at Moneyville.ca 

Every year at tax time I vacillate between worrying about how much more I’m going to have to pay and hoping I get a nice tax return I can put towards a vacation or something else on my wish list.

But the fact is, that if you pay more taxes through the year than you actually owe, you are giving the government an interest free loan. And there is a simple way to avoid making that mistake.

Related: Why a big tax return isn’t so great

If you make regular registered retirement savings plan contributions you can ask to have less tax money deducted from your paycheque each month. All you have to do is file a form T1213 – an annual request to reduce tax deductions at source.

The form can be sent in with your tax return if you expect a refund or if you include payment for the full sum you owe CRA.

Otherwise, prior to filing you will have to wait until you have paid any outstanding taxes owing. Along with the T1213, you’ll have to send in proof that you have established a pre-authorized contribution plan for your RRSP.

The form also allows you to request a reduction in source deductions by your employer in the other circumstances below, if you provide additional required supporting documentation:


  • You have child care expenses
  • You make support payments
  • You are required to incur employment expenses by your employer and you are not   reimbursed for these expenses (i.e., an office in your home, use of your car for business).
  • You have carrying expenses and interest expenses on investment loans.
  • You have expenses such as charitable donations or rental losses.

When you fill out the T1213 you will be asked to give contact information including the name, telephone and fax number for your employer’s payroll administrator – the person in accounting or HR who is responsible for withholding source deductions and sending them in to CRA.

About four to eight weeks after your documentation has been submitted, you will see your take home pay increased as a result of a reduction in the amount of taxes deducted at source.

Ideally, as a result of paying lower taxes, you will opt for maximizing your monthly pre-authorized RRSP contributions or pay down your mortgage.

Related: Use the tax system to pay yourself first and get a raise

But if you still really want to take a vacation this year, at least you will have the additional disposable income to save for it in a disciplined way without having to wait until the end of April to figure out how much you can actually afford to spend on your holiday.

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