Con­sider tax with­hold­ing forms to keep more on your pay­cheque

The Hamilton Spectator - - BUSINESS - CRAIG WONG

A big tax re­fund may feel like a wind­fall of found money, but it re­ally isn’t.

If you’re re­ceiv­ing a large re­fund ev­ery year that means you’re hav­ing more in­come tax de­ducted than nec­es­sary, and ex­perts say you may want to con­sider us­ing tax with­hold­ing forms to hold on to more of your pay­cheque.

“You’re giv­ing the gov­ern­ment es­sen­tially an in­ter­est-free loan,” says Tarsem Bas­raon, a se­nior man­ager and high net worth plan­ner at TD Wealth.

If you have these ex­cess taxes taken off your pay­cheque, Bas­raon says you could put that money to work im­me­di­ately in­stead of hav­ing it sit in the gov­ern­ment coffers un­til you file your tax re­turn.

To re­duce your amount of in­come taxed, there are two forms to con­sider.

First is the TD1, a form new em­ploy­ees are re­quired to fill out to iden­tify their ba­sic tax credit eli­gi­bil­ity. How­ever, sit­u­a­tions change and if it’s been a while since you started your job, it might be time to re­visit your TD1.

Bas­raon says if you’re claim­ing tax cred­its ev­ery year that you weren’t ini­tially, such as the spousal or care­giver amounts, you should file an up­dated form. There’s an amount you can claim if you’re 65 or older and your in­come is be­low a cer­tain level, de­pend­ing on which prov­ince you live in.

The other form to con­sider is the T1213, which is used to re­quest re­duced de­duc­tions from your pay­cheque for tax-re­lated items that aren’t part of the TD1.

John Sliskovic, a tax part­ner at EY’s pri­vate client ser­vices business, says the T1213 is used to iden­tify things like RRSP con­tri­bu­tions, child-care ex­penses, do­na­tions, em­ploy­ment ex­penses and sup­port pay­ments.

But if you’re us­ing the T1213, Sliskovic says the CRA re­quires doc­u­men­ta­tion to sup­port your re­quest.

“If you’re bas­ing it on, say, a large RRSP con­tri­bu­tion, they want to see proof of that,” he says. “Some­thing like sup­port pay­ments, you typ­i­cally would have a court or­der or writ­ten agree­ments.”

Un­like the TD1, Sliskovic says the T1213 needs to be filed an­nu­ally, ex­cept if you’re claim­ing sup­port pay­ments. In that case, if your de­ductible sup­port pay­ments stay the same or in­crease, you can file the re­quest ev­ery two years.

He cau­tions that if you make changes to the amount of tax with­held and some­thing un­ex­pected hap­pens like a sur­prise gain in in­vest­ment in­come, you could end up with not enough de­ducted.

“There isn’t any penalty or any­thing like that for be­ing wrong, so your risk is you do have to write a cheque at the end of the year that you re­ally weren’t count­ing on.”

Bas­raon says if your tax re­fund is only a few hun­dred bucks each year, it might not be worth the ex­tra work to file the pa­per work be­cause the amount will be spread out over your pay­cheques for the en­tire year.

CANA­DIAN PRESS FILE PHOTO

Peo­ple who re­ceive big tax re­funds ev­ery year may want to have less in­come tax de­ducted from their pay­cheques.

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