Large Refund Every Year? Reduce Your Withholding Taxes with a T1213

Most employed Canadians often get a tax refund because too much income tax is withheld from their pay cheques throughout the year. Employers use default formulas to estimate how much tax to deduct — but they don’t always account for things like RRSP contributions, tuition, medical expenses or other credits you claim at tax time.

For example: if you earn $60,000 and your employer withholds $9,000 in tax during the year, but you contribute $5,000 to your RRSP (which lowers your taxable income) and have other credits, your actual tax owing might only be $7,500. That extra $1,500 comes back to you as a refund!

Keep in mind, though, that this means the government is effectively holding your money interest free all year.

The government recently introduced the First Home Savings Account (FHSA), allowing Canadians to contribute $8,000 per year for 5 years into a savings or investment account. This $8,000 is a tax deduction, lowering taxable income when filing. It also grows tax-free and can be withdrawn tax free for a qualifying home purchase. I contribute to my FHSA each year, resulting in an extra $2,000 to $3,000 in tax savings.

Rather than waiting until the following March, I make sure to get my money back sooner by filing a T1213 - Request to Reduce Tax Deductions at Source. Now, instead of waiting until the following March, my employer withholds less tax on my pay cheque every month adding more money to my pocket that can be invested.

Here are 5 steps to file your T1213:

1. Check that a T1213 is right for you.

Filing a T1213 is typically appropriate if you:

• are an employee earning a salary or wage,

• have received larger refunds ($1,500 or more) in prior years,

• don't foresee significant changes to your income, deductions or credits in the upcoming year,

• are anticipating larger deductions or tax credits in the upcoming year:

  • regular contributions to an RRSP or FHSA,

  • a lump-sum contribution to an RRSP or FHSA,

  • pay childcare expenses or spousal support that gives you a significant deduction, or

  • have predictable medical or foreign tax credits, and

• have not included the above items on Form TD1 when you started with your employer.

If you are unsure whether a T1213 is right for you, make sure you talk to an accountant or tax expert at your company before filing the form.

2. Download and complete the T1213.

Download and complete the form available here:

• T1213 - Request to Reduce Tax Deductions at Source

If you are filing the form for FHSA contributions, you should enter the contributions on the RRSP line and then attach a short letter to support your request. Here is some example verbiage for your cover letter if you are making FHSA contributions:

I am submitting my T1213 Request to Reduce Tax Deductions at Source for the [year] tax year. I am requesting a reduction in tax withheld from my employment income to reflect my planned contributions of $8,000 to my First Home Savings Account (FHSA) this year.

I understand that my FHSA contributions are tax-deductible and will reduce my taxable income for the year. By approving this request, you will allow my employer to adjust the amount of tax withheld from my pay cheque, providing me with improved cash flow throughout the year instead of waiting for a refund at tax time.

Please find the completed T1213 form enclosed. Should you require any additional information or supporting documents, please contact me at the number below.

3. Submit the completed T1213 to CRA.

There are 3 ways to submit the form:

• Through My Account or Represent a Client here.

• By mail or fax:

  Sudbury Tax Centre

  PO Box 20000 Station A

  Sudbury ON P3A 5C1

  Fax 418-562-3368 or 1-833-697-2401

The form must be submitted every year to account for any changes to deductions/credits. It's recommended that you submit it as early as you can, even before the claim year, as the processing time can be weeks to months.

4. Provide your employer with the approved T1213.

Once CRA approves your T1213, they will mail you a letter to provide your employer. Give this letter to your payroll department so that they can adjust your tax withholdings.

5. Plan for the extra funds!

As a final step, it's prudent to earmark the extra funds you'll be receiving on your pay cheque. What would you normally do with your refund?

• Pay extra on your mortgage?

• Contribute to your registered accounts? TFSA, RRSP, and FHSA

• Add to your emergency fund?

• Save for your child's college? Consider an RESP.

Make sure you are making your promised contributions or payments for tax credits. If you are contributing less, make sure you're setting money aside for the potential tax bill at year end!

Weigh the pros and cons of filing a T1213 — some individuals like the idea of a larger refund because it's forced savings throughout the year (money that doesn't hit their bank account). On the other hand, I don't want CRA holdings my tax refund interest free for 12-months!