Wednesday, February 9, 2011

Big Fat Income Tax Refund

I’m looking forward to a big, fat income tax refund for the 2010 taxation year. It will be nice to get the cash, but it would have been better if the money hadn’t been taken off my pay cheques in the first place. In many cases there is a way to do this using CRA’s form T1213 Request to Reduce Tax Deductions at Source.

The most common reason for me to get a large income tax refund is that I made a lump-sum RRSP contribution. When I’ve made that contribution early in the year, I’ve sent in a T1213 form, got a favourable response from CRA, and took it to my employer who then took less tax of each of my pay cheques.

Unfortunately, some complications with my 2009 income taxes that haven’t been resolved yet prevented me from using a T1213 form for the 2010 taxation year, but I plan to use one for 2011. If you plan to make a lump-sum RRSP contribution for 2011 well before the deadline in a little over a year, consider collecting your tax break a little at a time instead of waiting for March or April of 2012.

There can be other reasons for reducing tax deductions at source other than RRSP contributions. The form lists child care expenses, support payments, employment expenses, carrying charges and investment expenses on investment loans, charitable donations, and rental losses.

Some people feel strongly about using the tax system for forced savings. For the rest of us who aren’t in a hurry to lend money to the government, consider the T1213 form.

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