Monday, June 18, 2012

How to Get Paid More on Payday

One of the secrets of wealthy individuals is this: don't give Revenue Canada more of your money than you need to at any given time. There are ways (legal ways) to reduce the amount of money that is "withheld" for the government on every pay cheque. And it doesn't matter what tax bracket you are in, you will benefit in the long run by keeping more of your money and putting it to work for your family sooner.

Here are two ways you can do this. But, before I go on, I should probably mention that the first step in paying less tax and reaping more tax benefits in the course of your life is to file your tax return every year. Not filing does not make it all go away and it will cost you a bigger pound of flesh in the end.

Now back to the two ways you can reduce your withholding tax right away.

Tip 1: Fill Out a TD1 Personal Tax Credit Return

You may have filled this out when you were employed but, even so, you should make sure that it truly reflects your family situation as it is today. Your employer can give you a copy, or you can download it from the CRA website and give it to your payroll person. And don't be shy about redoing this form every tax year or as soon as your situation changes.

Some of these tax-changing situations include: having a child, turning 65, having a change in pension amounts, going back to school, becoming disabled, changing your marital status, starting to support a common law partner or spouse, or starting to look after your parents or grandparents.

Here is a snippet from the form. Note that unlike the T1213 (below) which goes directly to CRA, this form goes to your employer.

Tip 2: Check Out Form T1213 Request to Reduce Tax Deductions at Source

As I mentioned above, the T1212 form to reduce taxes withheld on your pay cheques (or on a lump sum) is  between you and CRA. You have to submit this form every year and can use it if you are contributing to your RRSP, have childcare expenses, are making support payments, have employment expenses, and other expenses not covered on the TD1.

Once you complete the form, you have to send it to CRA. CRA gets back to you in about 6 - 8 weeks with a decision letter which you can then give to your employer to have withholding taxes reduced. This is a good thing and fairly easy to take advantage of.

What should you do with your extra money every month? Follow another secret of the wealthy: use the time value of money to either pay down high-cost debts or invest and earn interest or dividends of some kind.

Copyright 2012. Laura Thomas. All Rights Reserved.
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