According to Canadian tax expert Evelyn Jacks, the vast majority of Canadians prepay and overpay their taxes all year long by over $100 a month. Why are hardworking people so willing to give the government an interest-free loan just to get a refund at tax filing time?
Be tax wise and look to your payroll department to help you manage your cash flow by taking control of your gross earnings and paying only the correct amount of tax with every paycheque.
Why A Tax Refund Is Bad
Begin the TD1 Personal Tax Credits forms (one for federal and one for provincial tax withholdings). Instead of just claiming as single, take a look at last year’s tax return to see what you claimed on “Schedule One.”
Will anything change this year? Will you be getting married? Going back to school? Having a baby? All these circumstances can result in extra reductions to tax withholding requirements.
If you make RRSP contributions, have childcare expenses, carrying charges on investments or other significant deductible costs such as moving expenses or large charitable donations, complete form T1213 – Request for a Reduction in Tax Withholdings and send it to the CRA. They will give your employer permission to reduce your taxes at the source.
But don’t stop there. There are benefits available to employees under the tax system. Your employer may be open to negotiating for both cash and tax-free perks of value to you and your family. Some examples are discounts on merchandise, education costs for courses that benefit the employer, membership to fitness clubs, computers and communication devices, retirement savings, private group health care benefits and life insurance.
The following benefits are taxable, but worthwhile: Incentive and performance bonuses, stock options and profit sharing plans, interest free or low interest loans for investment purposes and travel benefits. These have different tax treatments, which can reduce your marginal tax rate.
It can pay to become tax aware if you have out-of-pocket expenses relating to your employment. Keep Form T2200 Declaration of Conditions of Employment signed by your employer in your files in case of audit.
The form states that these expenses have not been reimbursed and are required as a condition of your employment. Some examples you can claim are: automobile expenses such as interest or leasing costs and operating costs like gas, oil and repairs; travel expenses outside your metropolitan area; parking costs (but not at your place of employment); new tools for certain tradespeople.
Look for opportunities to split income with family members. Employees who are required to hire an assistant may deduct this cost. There is no rule that says this can’t be paid to your spouse or child. The amount must be reasonable for work actually performed. Keep all records.
If you pay GST/HST on union dues or professional fees or other claimed employment expenses such as travel, office supplies and vehicle costs make sure your apply for a refund.
When you have less tax taken from your earnings you can use the money to pay non-deductible credit card debt, pay down your mortgage, or contribute to your RRSP or TFSA. This is the best way for you to put more money in your own pocket all year long.
So stop sending the government so much of your money in advance. By minimizing the tax that’s withheld at the source, taxpayers will have more money to fund current wants and needs and can invest for the future.