In Canada, our employers withhold taxes from every one of our paycheques. Thanks guys, we really appreciate that. While taxes are like a never-ending loan payment collected by the CRA, it’s part of living in Canada.
Therefore, if you had the chance to have less money withheld from your paycheque, would you take it? Most people would say yes, and that’s where the T1213 form comes in handy.
Keep reading to learn about the T1213 tax form and why it might be important when you file your taxes.
Key Takeaways
- The T1213 form allows you to request fewer taxes be withheld from your paycheques.
- This is beneficial for taxpayers who have significant RRSP contributions, medical expenses, home-office expenses, or non-refundable tax credits.
- Filing the form reduces your refund at tax time, but it can help you better budget from month to month and grow your savings.
What Is The T1213 Form?
Essentially, the T1213 is a form that lets you request to have fewer taxes withheld at source.
Normally, employers use your TD1 Personal Tax Credits Return to calculate how much to withhold from your paycheques. However, sometimes your TD1 may not provide your employer an accurate picture of all your deductions and credits. This may lead to your employer withholding too much taxes from your paycheques. This is less than ideal, as you’re essentially extending the CRA an interest-free loan until you get your refund.
In such cases, you can use the T1213 Form to request the CRA withhold fewer taxes on your paycheques or a specific lump sum of money.
How Does The T1213 Form Work?
The T1213 form allows you to inform your employer of your deductions and non-refundable credits that don’t appear on your regular TD1 form.
Among the applicable sections on the T1213 is a section for child care and medical costs. Since these are tax-deductible, you ultimately won’t be paying tax on them. Instead of correcting them during your annual filing, you can inform your employer of how much you pay in these categories. It will then be factored into your paycheque’s deductions.
T1213 Form And RRSP Contributions
The T1213 applies to any income directed toward a deductible expense. Take, for example, using your Registered Retirement Savings Account (RRSP) to optimize your savings and help you pay less at the source. Let’s say you want to max out your RRSP contributions by adding to the account every month.
You could use the T1213 form to qualify for a monthly reduction in tax withholding. Then you could contribute those savings to your RRSP each month and earn interest.
How To Make A Request To Reduce Tax Deductions At Source?
Step 1: Find Out If You’re Eligible
Not everyone is eligible to have their taxes reduced at source, however, if you fall under any of these points, you may qualify:
- You’re making significant RRSP contributions
- You have a large medical expense you can claim as a tax deduction
- You have home-office expenses you can claim
- You qualify for non-refundable tax credits
Essentially, if you’re expecting to receive a fairly decent tax refund, you can use the T1213 to request to have fewer taxes withheld at source. Doing so, in effect, divvies up a portion of your annual refund and returns it to your paycheque. Instead of refunding it in the long run, the government just lets you keep it right away.
Step 2: Get Your Documents Ready
The first step is accessing the form itself. It’s quick and painless to fill out, being only one double-sided page long. You can download and fill out a PDF, print and fill out by hand, or ask for an alternative accessible format.
Then there are two approaches you can take. The first is to reduce withholdings on a lump sum, like that annual bonus, large commission payment, or vacation payout. If you want to do this regularly, you would fill it out according to your annual salary.
STEP 3: Submit The Form
Once you’ve completed the form, you can send it to your closest Revenue Canada services. This form is then sent to your local CRA tax services office for approval. After they have checked it over and approved the form, the CRA sends out a letter of authority. You must give your employer this form so that they can adjust your tax deductions according to the form’s indications.
Learn how to open a CRA My Account.
Step 4: Repeat Annually
Your acceptance doesn’t renew automatically, rather you must apply every year provided your situation remains consistent. This practice is meant to accommodate those with fluctuating situations and enables you to better handle lump sums and annual bonus structures. Always be ready to substantiate your claims upon request, keeping all relevant receipts and paperwork.
Things To Consider When Filing A T1213 Form?
If you file a T1213 and qualify for those source deductions, there are some things you should keep in mind, such as:
- You’ll receive a reduced refund at tax time, if any.
- If miscalculated, you may owe taxes when you file your return and receive your notice of assessment.
Benefits Of Filing A T1213 Form
The major benefit of filing a T1213 form is the ability to better budget and grow your savings.
While it’s great to get a few thousand dollars during springtime, it can lose you money in the big picture. Remember, any refund received isn’t free money, it’s simply the CRA returning the excess tax you paid throughout the year above and beyond what was owed.
By reducing your taxes at source, you can use that extra money to better budget or put toward your savings. If you put those extra savings into a high-interest savings account, you could earn up to 4%-5% depending on the company. Similarly, you could invest the extra money in stocks, which could earn you a high rate of return depending on the risk and market volatility.
If you wait to get your tax refund in the spring, you don’t earn interest during the CRA stashes your estimated taxes each month. You’ve loaned them hard-earned cash for no reward.
Don’t agree with the CRA’s assessment? File a Notice of Objection.
Final Thoughts
Any chance to gain better insight into your finances poses an opportunity to improve your future situation. Considering how to approach your taxes doesn’t have to be an annual matter. The T1213 lets you approach your earnings on a more regular basis, giving you the chance to invest, save, and grow your money.
Of course, every reward comes with its own set of risks. If you were going to get a refund, then there is no real downside. Conversely, if you end up making it to a higher tax bracket than expected, you will have remitted much less and have a higher amount owing. It’s up to you to decide how to approach your money — the T1213 gives you the power to control it throughout the year.
