Times Colonist

Big return? You may be paying too much tax

- CRAIG WONG

OTTAWA — 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 onto more of your paycheque.

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

If you have these excess taxes taken off your paycheque, Basraon said 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 said 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, said the T1213 is used to identify things such as RRSP contributi­ons, child-care expenses, donations, employment expenses and support payments.

But if you’re using the T1213, Sliskovic said 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. Something like support payments, you typically would have a court order or written agreements.”

Unlike the TD1, Sliskovic said 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 cautioned 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,” he said.

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