Thursday, August 23, 2012

Getting an Early RRSP Tax Refund

For those who make their yearly RRSP contributions much sooner than the deadline of 60 days into the next year, it’s possible to get your tax refund well before filing your tax return for the year. You can do this by sending a T1213 form to CRA and taking the letter they send back to your payroll department. In my case, I’ve had to solve a minor problem of producing evidence that I made the contribution.

The basic idea is that if you contribute to your RRSP, your payroll department is allowed to take this into account and deduct less tax from your pay. So, you effectively get a refund over the course of the year instead of waiting until you file your income taxes. However, you have to prove to CRA that you actually made the contribution.

The T1213 form asks for your “payment arrangement contract,” which you would have if you make periodic RRSP contributions. However, I tend to contribute lump sums online with my discount brokerage, and they don’t send me any paperwork until the next February.

For two years now, CRA has accepted screenshots of the transaction history of the account I sent money from and the RRSP account that received the money. In fact, this year it took only 7 business days to go from mailing in my T1213 to handing CRA’s positive reply to my payroll department. I’m looking forward to a big bump in net pay on my next pay deposit.

There are a couple of things to be careful about here. One is to make sure that you’re not double-counting. If you make RRSP contributions that your employer already knows about, they may be already reducing your payroll taxes.

The second thing to be careful about is the second to last line of the T1213 form: “Subtract income not subject to tax deductions at source.” You’re not supposed to abuse the T1213 form to reduce payroll taxes and end up owing money when you file your income taxes.

6 comments:

  1. I was just thinking through this as I was reading your post. I usually contribute money in the first 60 days of the new year, but since I've already maxed out my RRSP for the previous year, it is counted towards the current year. This is all submitted when I do my taxes, so it's on record, but I would get my tax refund next year.

    For example, I maxed out my 2012 RRSP room already. In January and put in $8000. This information is all submitted to the government.

    Can I just use that T1213 form, say I've already put in a chunk of cash and get less tax deducted throughout the year?

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  2. @Chris: If I understand you correctly, you have undeducted RRSP contributions from January or February of 2012 that CRA already knows about and you're thinking of reducing your payroll taxes for the remainder of this year rather than waiting until early 2013 to file your taxes and get a refund. I'm no tax expert and was just reporting my own experience, but I see no reason why this wouldn't work for you. Just make sure you report on the T1213 any income you have without tax deducted at source. Also, be sure that the RRSP contribution isn't connected to an employer plan that is already taken into account on your payroll taxes. You could include a note with your T1213 form explaining the situation and see what they say.

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  3. Excellent.

    I don't know why I haven't done this in the past. I assume it's some sort of mental accounting where I get a refund at the end of the year.

    Thanks

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  4. Wow, 7 business days!

    I've filed T1213s for the past 6 or 7 years, and in my part of Canada it's always taken about 2 months to get the approval letter back.

    For the accompanying documentation, I just type of a piece of paper stating that I make monthly contributions of X amount. I appreciate that they accept that. (The first year I got a statement from my bank showing the automated payment plan, but it's definitely more user-friendly not having to go through that hassle every year.)

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  5. @Daryn: The longest I can remember waiting for a T1213 response was about a month. Your waits of 2 months sound unreasonable. Perhaps I benefit from the fact that I tend to make my RRSP contributions after tax season.

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  6. I always intend to mail/fax my form in October but always get out in early November. Arrives in early January.

    This past year I had taken a year off work and returned in April, therefore my form went in in April, received confirmation in June.

    Guess it's just my tax office.

    Oh well, as long as I know what to expect it's not so bad. I can still *intend* to send it in October this year, just like every other year! : )

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