From: AlanBaggett@volcanomail.com   
      
   Is Your Tax Refund Too High? Reducing Your Tax Deductions At Source : CRA SOTW   
      
   Last Updated: November 26 2013   
   Article by C. Alice Madolciu    
   Crowe Soberman LLP    
      
   You're an employee. Your employer diligently withholds tax, Canada Pension   
   Plan (CPP) and Employment Insurance (EI), and remits these to the Canada   
   Revenue Agency (CRA) on your behalf throughout the year, as required. You have   
   just completed filing your    
   taxes for the previous year, and success; you are getting a refund!   
      
   But hold the excitement; perhaps it's time to stop and consider the facts. A   
   tax refund could simply mean that you have overpaid your taxes for the year,   
   and are effectively loaning money, interest-free, to the CRA. Then at tax   
   time, the CRA repays this    
   money to you under the disguise of a "tax refund"!   
      
   How did you let this happen? Well, you likely claimed tax credits and   
   deductions on your tax return which your employer did not know about when your   
   taxes were withheld at source. These credits and deductions decreased your   
   taxes payable so that when you    
   filed your tax return, the amount owing was less than what was remitted,   
   resulting in a refund.   
      
   So, how does your employer decide how much tax to deduct from your pay cheque   
   in the first place? When you begin employment, you complete Form TD1, Personal   
   Tax Credits Return. Form TD1 assists your employer in calculating the amount   
   of tax to deduct    
   from your pay cheque based on your declaration of the non-refundable tax   
   credits (tuition and education amounts, caregiver amount, spousal amount,   
   amount for dependent children, etc.) to which you are entitled.   
      
   Invariably however, your personal circumstances will change. Important life   
   events like getting married or having a baby may increase your credit   
   entitlement, and hence, the amount of tax required to be withheld from your   
   pay can in fact be lower than    
   when you first began your employment. You should always complete a new Form   
   TD1 (within seven days) whenever your personal circumstances change such that   
   you are entitled to additional credits, or are no longer eligible for certain   
   credits (I.e. your    
   child reaches the age of 18 and you are no longer entitled to the amount for   
   dependent children.) In fact, not doing so can result in a penalty of $25 for   
   each day the form is late, with a minimum penalty of $100, and a maximum   
   penalty of $2,500.   
      
   If you know you are going to have significant deductions from your income in a   
   certain year: RRSP contributions, child care expenses, rental losses, support   
   payments, employment expenses, carrying charges, charitable donations, etc.,   
   you can complete and    
   submit to the CRA Form T1213, Request to Reduce Tax Deductions at Source. This   
   form requests permission from the CRA for your employer to use the deductions   
   you will be entitled to, in order to reduce your tax withholdings in that   
   particular year. If    
   approved, the CRA will provide a Letter of Authority (typically within four to   
   six weeks of submitting Form T1213) that would be provided to your employer as   
   confirmation to reduce tax withholdings. You can also use Form T1213 to   
   request a reduction in    
   tax deductions at source for certain non-refundable tax credits that are not   
   part of Form TD1, such as foreign tax credits, which Form T1213 does not   
   provide implicitly for. Note that the CRA will not usually issue a Letter of   
   Authority if you have a tax    
   balance owing or have not filed outstanding income tax returns.   
      
   Reducing your tax withholdings at source effectively increases your net amount   
   of pay, so you get to take home more money every pay cheque throughout the   
   year, when you've earned the money, and not at tax time, after the CRA has   
   held this money on your    
   behalf.   
      
   The content of this article is intended to provide a general guide to the   
   subject matter. Specialist advice should be sought about your specific   
   circumstances.   
      
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