With tax season approaching, anyone who anticipates a tax refund should be gathering all information together to bring into their accountant so that their taxes can be filed as soon as possible. Canada Revenue Agency will normally start processing tax returns around mid February, so returns cannot be electronically filed before then, whilst paper returns will be set aside and not processed until then.
The fastest way to obtain your refund is to file your return electronically and have the refund direct deposited. However, if you know you will receive a refund for a tax year, it is even faster to never have the taxes withheld at source, and receive your refund in advance, in the form of larger paycheques during the year.
If you are an employee and normally receive a tax refund when you file your tax return, you are probably having too much tax withheld at source. If this is the case, there are ways to reduce the amount withheld at source.
For employees, the first step is to fill out a TD1 Federal and TD1 Provincial form and give it to your employer. These forms are used by the employer to determine how much income tax to withhold from employees’ paycheques. The TD1 form starts with the amount to be withheld for a taxpayer with no deductions or tax credits, then accounts for tax credits such as the personal exemption, child amount, age amount, disability amount and a variety of other tax credits the employee is eligible to claim. If your personal circumstances have changed since the last time you filled out a TD1 form, or you didn’t fill out the TD1 form correctly, you should correct this. There are separate TD1 forms for Federal and Provincial taxes.
In addition to the TD1 form, an employee can request permission from CRA to have taxes withheld at source reduced for a variety of tax deductions and tax credits. If you know you will have RRSP deductions, child care expenses, support payments, charitable donations, employment expenses, interest expenses, business or rental losses, or other items to deduct you can request permission to reduce the tax withheld at source on your paycheque. To request this reduction, form T1213 can be filled out, or a letter can be written and sent to CRA. CRA will reply with an approval letter if the request is approved, which will authorize the employer to reduce withholding of taxes.
If you aren’t sure about what, if any, changes to make to your tax withheld at source, talk to your accountant when you meet to discuss your income tax return. You might be able to start to benefit immediately.