No more free loans to the Tax Man

People are always telling me why they can’t save. In the next breath they tell me about the tax refund their getting.

“Why would you give the government an interest free loan?” I ask.

“It’s like forced savings,” they say.

So what they’re really saying is, they can’t keep their sticky paws off their savings and would rather earn no interest on their money. Hmm …

Here’s a form that very few people use, but is remarkably useful for keeping money out of the government’s hands: Form T1213. This form lets you request permission from the Tax Man to have your employer reduce the amount of income tax taken off your paycheque every month.

If you can demonstrate that you’re eligible for certain recurring deductions that will reduce your tax bill at the end of the year, you can trade in your tax refund for more take-home pay.

Do you make monthly RRSP contributions by way of pre-authorized withdrawal? You’re eligible. How about child-care expenses? If you’re tithing monthly you can do it for your charitable donations. If you have rental losses, interest expenses on investment loans or carrying charges, those are eligible too.

You’ll have to fill out the form and send it to the Tax Man each year. You can do it at any time, but the best time is in October or November for the following year. Once you’re approved, the Tax Man will provide instructions by letter to you, which you then give to your employer, who will adjust your pay for the remainder of the year.

Fill out Form T1213 and get the Tax Man’s approval and instead of paying extra tax and getting refunded, you’ll pay less tax on an ongoing basis so you’ll have more cash that you can then use to establish an automatic savings plan. Whether you send that money to your RRSP, your TFSA or your high-interest savings account, it’s way better off in your hands than in the tax man’s.

As you’re filling out your tax return and clapping your hands together because you’ll be getting a refund ask yourself, “Would I have been better off having this money earlier to put towards something important I wanted to do?” If the answer is “Yes”, get the form, get it ready to file in the fall, and put the date in your calendar so that next year you keep more your money.