I used to rejoice every April when I got my big fat tax refund back from the good folks at the Government of Canada. The money was like a windfall, a treat, a big juicy pay day. My refunds usually amounted to upwards $4800 since I maxed out my retirement savings plan (RRSP) every year. So you can understand why I always looked forward to tax season.

Three years ago I changed my tune about large tax refunds. When I did some simple math, I found both my “better half” and I were owed a combined $8200 from the govvies for a single tax year. WOAH. As a couple, that is exactly $683.33 less bucks a month we had in our savings accounts, earning interest for us. I then did some more math and calculated how much compound interest we didn’t realize. Here are some quick numbers illustrating how $683 bucks adds up when saved every month for three years at 4% interest:

By overpaying in taxes and giving the government an interest free loan, my “better half” and I lost out on hundreds of dollars in interest each year. Grumble grumble. Now don’t get me wrong, I happen to like the Government of Canada, but to just give them my money for free is nuts. So I started poking around and found a wonderful form which reduces the amount of tax I overpay every month, and thus reduces my interest free loan to the government. The form is called T1213 – Request to Reduce Tax Deductions at Source, and it is really handy for those who have the following deductions:

  • RRSP Contributions
  • Childcare Expenses
  • Support Payments

The form itself is really straight forward. You basically just outline all deductions or non-refundable tax credits for the current tax year and submit it to your local CRA office. I should mention this form works best when submitted early in the year (like now). For those with RRSPs, here’s what you need to do:

1. Choose from the following RRSP contribution options:

  • Set-up a Pre-Authorized Contribution (PAC) plan with your RRSP investment company showing the amount you will regularly contribute. OR
  • Make a lump sum contribution to your RRSP.

2. Once the contribution option is setup, be sure to photocopy the PAC or RRSP receipts from your investment company.
3. Fill out form T1213- Request to Reduce Tax Deductions at Source (from the CRA’s website).
4. Mail your photocopied contribution receipts and T1213 form to your CRA office. In my experience, it takes the CRA anywhere from 2-6 weeks to approve your request.
5. Submit the CRA’s approval form to your payroll administrator at work.
6. Smile, you’re next paycheck is a little bigger and you no longer lend the CRA your hard-earned money for free.

I am currently waiting for the CRA to send my approval. I’ll let you know how it goes. 🙂