Thursday, 9 April 2015

Stop making interest-free loans to the government!

Got your attention?  Let me explain.   I just finished doing my family’s tax returns and like every year, after putting all the information into the app I use, I cross my fingers for a big refund.  I run down to tell my wife and we have a happy moment about this “found” money and what we are going to do with it.  Sounds great doesn't it? But wait a minute…this is really the government giving me back money they owed me but much later so I just gave them an interest free loan.  If only there was a way to get more of the money during the year so I have more to spend.  Most people have heard of the TD1 Personal Tax Credits Return because most likely your employer gives it to you at the end of the year to fill out for the coming year.  

A less known way to reduce the tax your employer withholds from your pay cheque is to use the T1213 Request to Reduce Tax Deductions at Source.  This form covers other deductions not covered by the TD1.  Sorry this only applies to Canada.  I'm sure some of you in other countries will have similar mechanisms to use.

I’ve used it for RRSP contributions and when my kids were younger, child care expenses.  There are other things as well.  The way it works is you fill out the form with proof of the deduction, send it the Canada Revenue Agency and they send back a letter like the one pictured here to give to your employer telling them how much to reduce your taxes being withheld against your paycheque. 

Pretty simple.  Just try and do it before the end of the year so things are set up for the beginning of the calendar year. For me, the RRSP contribution item has an added benefit. I can provide evidence of a pre-authorized monthly contribution and a whole year’s contributions are used in the calculation.  This has encouraged me to try to maximize my monthly contributions increasing my regular savings and that's always a good thing.

A couple of other items before I close off.  As of my last posting, I've had over 6000 views thanks to all of you.  Also, I now have a twitter account so please add me to the list of those you "follow".   Aside: If you want to get some really funny looks, try telling your two teenagers you've opened an account. 

Well that’s all for now.  If you have any ideas for a future topic please, feel free to post a comment (anonymously if you’d like) or email me.

James Whelan

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