Reducing Tax Withheld at Source

“‘it is a good idea to start the process now’.”

Source deduction waiver requests usually take four to six weeks to be processed by the CRA, so it is a good idea to start the process now for 2010 requests. Employers are not allowed to reduce withholdings below the statutory requirements unless they have approval from the CRA. The approval of a reduction is not retroactive. If it is not granted before the first pay period for 2010, some periods will not be subject to reduced withholdings.

In order to request a reduction for the year, an employee must submit Form T1213, together with supporting documents, to their nearest tax services office. In the case of deductible support payments, the request can be made for a two-year period.

Items covered on Form T1213 include:

  • RRSP contributions made by the employee;
  • child care expenses;
  • support payments made by the employee;
  • employment expenses;
  • carrying charges and interest expense on investment loans;
  • other, including charitable donations and rental losses.

If the application is approved, the CRA will issue a letter of authorization for a specific tax year or years.

There are certain deductions that can result in reduced source deductions without the need to file a Form T1213. Employees who are paid commissions and who claim expenses may choose to complete Form TD1X to claim a reduction for certain expenses.

Other provisions of the Regulations to the Income Tax Act allow for a reduction in source deductions without a Form T1213 where the employer deducts or withholds from the employee’s pay any of the following items:

  • contributions to a registered pension plan;
  • payment of union dues;
  • contributions to a retirement compensation arrangement or certain other pension plans;
  • contributions to a registered retirement savings plan provided the employer has “reasonable grounds” to believe the contribution can be deducted by the employee for the period; and
  • deductible support payments

If an employee has a balance owing or has not filed outstanding income tax and benefit returns, approval will be withheld.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

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Cadesky Tax