Big and sad news for you: getting a big refund when filing your taxes is not always a good thing for you. Sometimes is due to lack of planning. Imagine if with each paycheque you could pay less taxes and get more money! It's a possibility.
Canadian Tax Law based its rule on fairness, you pay what is fair for your personal and family situation. There credits and benefits you can apply to depending on your amount of income. Then, let's do that, pay only what's fair, no more, no less.
When getting your paycheque you have some deductions applied, that is way your earned amount is not the same as your collected amount (net pay). The basic ones are: Canada Pension Plan (CPP), Employment Insurance (EI) and Income Tax (IT). There are additional benefits depending on your job: Pension Plan, Group insurance plan, RRSP savings Plan, etc.
EI and CPP contributions are calculated on earned income and usually you can't change them due to tax rules. But you can calculate the exact amount of Income Tax you would pay at year end and this is the way to increase your paycheque. How?
- Via your employer: make sure every year you sign the appropriate forms regarding your personal and family situation
- There are federal and provincial forms. TD1 Personal Tax Credit Forms: This form will allow you to report your current situation and calculate the right amount of taxes to pay.
- It’s important to file this form if you change your marital status, have a new child, you have more than one job, or you are a student
- This form will recalculate the tax to pay and help you get ore money now instead of waiting to get a big refund
- Via CRA: there are situation when you can directly request CRA to reduce your tax bill:
- If you are excepting significant deductions as: Huge RRSP investments, rental losses, child care expenses, employment and medical expenses. Use this form only for situations not contained on the TD1
- You can file then the form T1213 Request to Reduce Tax Deductions at source and if approved CRA can give authorization to reduce your paycheque tax bill.
As you see, having a great refund is not always good news, you can plan and have more money on your side during the whole year, then you can use it to save on RRSP, TFSA, pay old debts or going on holidays with your family.
Here are the 4 tips to avoid paying more taxes during the year and save/gain money:
- Always update your personal/family situation with CRA
- Ask your employer to calculate your tax expenses using the TD1 Personal Tax Credit Forms
- If your situation is changing dramatically ask CRA for an adjust with the T1213 Request to Reduce Tax Deductions
- The extra money you get on each paycheque save it for the future using RRSP, TFSA or buying the insurance you need to protect you and your family
Hope this can help you plan better for the next tax season. Contact us today for an appointment and we can help you plan for your tax bill.
Photo by rawpixel on Unsplash