For most Canadians, income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by their employer.
Each taxpayer’s situation is unique and so the employer must have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but minimally at the time employment commences. Each employee must, complete two TD1 forms – one for federal tax purposes and the other for provincial tax. Federal and provincial TD1 forms for 2018 list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount, and the age amount.
While the TD1 completed by the employee will have accurately reflected the credits claimable, everyone’s life circumstances change. Where a baby is born, or a child starts post-secondary education, a taxpayer turns 65 years of age, or an elderly parent comes to live with their children, the affected taxpayer will be become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.
It is a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for all credit amounts currently available to him or her. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.
Where the taxpayer has available deductions, which cannot be recorded on the TD1, like RRSP contributions, deductible support payments or child care expenses, it makes things a little more complicated, but it’s still possible to have source deductions adjusted to accurately reflect the employee’s tax liability for 2018. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source Once that form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld at source.
Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. Consequently, the sooner a T1213 for 2018 is filed with the CRA, the sooner source deductions can be adjusted, effective for all paycheques subsequently issued in that year. Providing an employer with an updated TD1 for 2018 at the same time will ensure that source deductions made during 2018 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year.