While some individuals prefer to receive a refund when they file their income tax returns, many prefer to increase their periodic take-home pay instead.
If expenses are easily confirmed, requesting the CRA to approve a reduction in the amount of tax withheld at source can be an easy way to convert a year-end refund into increased take-home pay. If an individual claims properly supported deductions for items such as RRSP contributions, child care expenses, support payments, employment expenses, charitable donations or interest expense, the CRA will authorize a reduction in source deductions.
A request is made on Form T1213, available on the CRA’s website (www.cra.gc.ca). The CRA unit that processes these requests will not approve a request if taxes are due or tax returns are outstanding, including a return that has been filed but not yet assessed.
Employers could be at risk for penalties and interest for under-withholding if the employee’s source deductions are reduced without approval from the CRA.
Requests must be made annually. Where someone has deductible support payments that are the same or greater for more than one year, a two-year waiver is available. While it is generally a good idea to submit a request prior to the beginning of a calendar year, the CRA has been known to allow a retroactive reduction in the amount of source deductions.
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