Tax planning and form T1213 can boost your cash flow

You likely qualify for deductions when you file your income tax return. If so, some tax planning this month by properly filling in form T1213 Request to Reduce Tax Deductions at Source, will reduce the amount of tax taken off your pay cheque in 2016.

A friend’s year of maternity leave is up. While going back to paid work will raise her income, she worries her cash flow needs will rise even more.

Our friend will have to cover the cost of care for her daughter, of course. At $200 a week, she estimates it will cost her $10,000 a year or so. Our friend also wants to contribute $2,500 a year to a Registered Education Savings Plan for her daughter. With the government adding $500 each year, her daughter may graduate without a crushing debt load.

Finally, our friend wants to keep maximizing her RRSP—as she did before her daughter was born. She can’t contribute much to her RRSP since she earned little over the past year. We advised her to contribute to her TFSA (Tax-Free Savings Account) instead. But starting in 2017, our friend wants to make full RRSP contributions. With a base salary of $55,000, she’s entitled to contribute at least $9,900 (her company has no pension plan). Depending upon the size of her bonus, she can contribute even more.

It pays to fill in form T1213

Our friend wonders how she can manage to meet all of these demands on her cash flow. Your children or grandchildren may face the same dilemma. We advised our friend to file form T1213 with the Canada Revenue Agency (the CRA is the tax department). By doing so, she can reduce the amount of income tax that gets deducted from each pay cheque.

Our friend can complete the “Child care expenses” section of the form and claim $10,000. In 2017, she can also claim her RRSP contributions. The tax department will authorize her employer to reduce the amount of income tax deducted from each pay cheque. That is, instead of getting a larger tax refund in the spring of each year, our friend will get part of these refunds back on every pay cheque throughout the previous year.

The deductions and non-refundable tax credits you’re entitled to claim on form T1213 include RRSP contributions, child care expenses, support payments, employment expenses, carrying charges and interest expenses on investment loans as well as various other deductions for such things as charitable donations or rental losses from real estate.

If you fail to fill in form T1213, the extra taxes you pay are essentially an interest-free loan to the government. You only collect on this loan when the government sends you a tax refund. Fill in form T1213, however, and you’ll cut your interest-free loans to a minimum. This, in turn, will raise your cash flow.

Here are the steps

To get form T1213, start by going to the tax department’s website:

Then click on the box “Forms and Publications”.

Next, click “Document Type”.

Scroll down until you see “Tax Forms (Income Tax, Excise, GST/HSC)”. Click on this.

On the left-hand side of the page you’ll see the heading “Forms and Publications Listed By”. Down below is the box “Frequently requested”. Click on the box.

Under the heading “Individuals”, you’ll see the word “Forms”. Click on “Forms”.

Scroll down until you see “T1213 Request to Reduce Tax Deductions at Source”. Click on this.

Then click on the PDF button to view the form. At that point, of course, you can print it.

Fill in form T1213 today

The CRA has advised us that it’s best to send in the form no later than November if you want to increase your cash flow for the following year.

It’s somewhat difficult to get to form T1213 on the tax department’s website. This is probably deliberate. After all, most Canadians qualify for at least one of these deductions. If you make use of the form, the size of your interest-free loans will shrink. This means that the government will have less of your money to earn interest for its own benefit.

You undoubtedly could put the extra cash flow to better use than the government can. So fill in form T1213 and increase your cash flow.


The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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