A hefty refund on your income taxes may feel like a windfall, but is it the best financial plan? Do you really want the CRA to hold a big chunk of your cash throughout the year?

Most Canadians who earn income from employment have amounts taken from each paycheque to cover income tax and other mandatory deductions like Canada Pension Plan and Employment Insurance premiums. Your employer calculates the amount due based on the TD1 forms you submit when hired.

Then life happens. A new baby. Post-secondary education. Marriage. Grandma comes to live with you. Any of these scenarios (among others) may boost your eligibility to claim more tax credits.

More tax credits = less tax payable.

Since your employer can only calculate source deductions based on the information you provide, those new credits won’t be reflected in your paycheque unless you submit new TD1 forms to ensure that the correct amount of tax is deducted at source throughout the year.

You may have available deductions that cannot be recorded on the TD1, like RRSP contributions, deductible support payments or child care expenses. It’s still possible to have source deductions adjusted to accurately reflect those claims by filing Form T1213 - Request to Reduce Tax Deductions at Source. After verifying that the claims made are accurate, the CRA will provide your employer with a Letter of Authority authorizing reduction of the amount of tax being withheld from your paycheque.

Ideally, your source deductions will be just what is required to cover those expenses. No more, no less.

As with all things bureaucratic, having your source deductions reduced by filing a T1213 takes time. Providing your employer with updated TD1 forms for 2021 as soon as possible, along with filing the T1213 with the CRA, will ensure that source deductions made for the rest of the year will reflect your current circumstances, and actual tax liability for the year. If all of this is a little overwhelming, give us a call. We can help lower your stress and boost your take-home pay.

The result may be a lower tax refund next year, but a fuller wallet year-round.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.