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Tax tip for the financially disciplined: Form T1213

'Filling out forms' photo (c) 2008, Jason Hickey - license: you usually get a substantial tax refund in April of each year?  If so, do you realize that you are loaning your money to the government for a year without earning any interest?  Does that sound like a good investment?

Now, if you’re the type of person who needs to get the money in a lump sum in order to use it responsibly, then maybe it’s a good strategy for you to keep doing what you’re doing.  In other words, if you need forced savings, then stop reading right now.  This post is not a good idea for you.

However, for those who could use the tax refund money throughout the year instead of in a lump sum, and who are confident in their money management discipline, form T1213 can be quite useful.  I have had personal success with this form for a number of years and am just about to pop it in the mail for the 2013 tax year.

What is From T1213 and why would I want to fill it out?

Form T1213 is a request to reduce the amount of tax that is being withheld from your salary or from a lump sum (i.e. a bonus or severance pay) received during the year.  For example, if you normally receive a $6,000 tax refund, then this form could allow you to net $500 more per month during the year instead of receiving the entire amount in April of the following year.

If you took that $500 each month and applied it against credit card debt, you could save yourself around $600 in interest charges for the year (assuming an annual rate of about 18%, compounded monthly).  If you don’t have credit card debt, you could put that money in your RRSP to take advantage of dollar cost averaging on your investments, pay extra on your mortgage, beef up emergency savings, or put it in a vacation fund and earn interest on it.  Admittedly interest rates on a savings account are not that significant, but even if you just earn enough to pay for one meal in a restaurant while you’re away on vacation, isn’t that better than nothing?

Filing procedures

Before you can fill out form T1213, you need to understand why you’re asking for a reduction in tax withheld.  Acceptable reasons can include on-going RRSP contributions (except those deducted directly from your pay by your employer), child care expenses, support payments, employment expenses, carrying charges and interest expenses on investment loans,  charitable donations, and rental losses.  You’ll need to attach evidence of these on-going payments to the form when you send it in.

In order for T1213 to be considered by Canada Revenue Agency, your account needs to be in good standing with them.  The amount of the potential refund also needs to be significant enough that it can be argued that you could experience financial hardship by not getting the money earlier.  “Financial hardship” isn’t an exact amount.  If you think the amount is worth asking for, then by all means send the form.  The worst thing that can happen is that they say no.  If that happens, you can still claim the expenses on your tax return and get the refund later.

When you’ve finished filling out form T1213, you need to send it to your local Tax Services Office.  You can find out where that is at    After CRA processes your request, they will send you a letter that you will give your employer.  The letter does NOT say which tax credit you are claiming.  It only tells your employer that they can reduce your tax withholdings.

Caution:  If your situation changes during the year and you no longer have the deduction, then you need to let your employer know to withhold the additional tax.  If you don’t, you’ll end up paying a lump sum when you file.

Will you use form T1213 for 2013?  Feel free to let me know in the comments or e-mail me.

November 10, 2012

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