Consider this: $150 a month could help you take advantage of investment
opportunities or pay down debt. Investing the money in a Tax-Free Savings
Account (TFSA) at a 5% return would earn almost $50 in interest over a
12-month period. While that may not sound like much annually, it’s
significant over the long-term if that investment is allowed to grow. The
earnings are tax-free along the way and when they are withdrawn, too.
If the money is put into a Registered Retirement Savings Plan (RRSP),
almost immediate tax savings would result, at the taxpayer’s marginal tax
rates, provided the taxpayer is age-eligible and has RRSP contribution
room. A spousal RRSP opportunity may also be possible. This opportunity
brings with it the possibility of reducing withholding taxes throughout the
Likewise, if taxpayers used that $150 monthly payment to reduce debt –
particularly high-interest consumer debt – instead of giving it up to the
CRA in overpayment, that could make a significant financial impact.
Especially when you consider that the average interest rate for credit
cards in Canada is 19%, and that number continues to rise. The benefit is
exponentially positive, given that interest on consumer debt is not
Many Canadians celebrate their refund cheque as though it’s free money,
when in reality, money collected through over-taxation should have been
theirs all along. Lacking access to it therefore has a negative impact on
their financial future – making the tax refund a foe, not a friend, to
financial planning goals.
To prevent these repercussions seek out the services of a certified
professional in tax-efficient debt management or a
Real Wealth Manager, who can help you coordinate financial plans with tax filing priorities.
It’s important to reduce CRA’s reach up-front, and control whether the
correct amount of tax is being paid on a regular basis.
Consider the following implementation tips:
* Fill out a TD1
for your employer’s payroll department, outlining tax credits and
deductions you’re likely to claim. Payroll deductions can be adjusted
accordingly. This often needs to be requested, as most companies don’t
routinely provide these forms to new hires.
* Update your employer
on significant life changes that may impact the amount of tax to be
withheld (child or spouse no longer a dependent, for example).
* Inform your employer
if you have more than one employer in the same tax year. This could affect
your tax-exempt basic personal amount. Otherwise, if a new employer assumes
this applies, under-taxation could occur, and you’ll owe money you weren’t
* CRA can give approval to an employer to collect less tax
in cases where employees are making RRSP contributions or claiming
significant childcare costs, for example. An advisor can help you make the
right moves in order to ensure only the necessary taxes are being withheld.
The Statistics Canada Individual Income Tax Report
© 2019 The Knowledge Bureau, Inc. All rights reserved. Reprinted with
is the founder and President of Knowledge Bureau, which
brings continuing financial education in the multiple areas of
specialization to advisors and their clients. She is the author of 52
books on tax and wealth planning. This article
originally appeared in the
Knowledge Bureau Report. Follow Evelyn Jacks on Twitter
@EvelynJacks. Visit her blog at www.evelynjacks.com.
Notes and Disclaimer
The foregoing is for general information purposes only and is the opinion
of the writer. No guarantee of investment performance is made or implied.
It is not intended to provide specific personalized advice including,
without limitation, investment, financial, legal, accounting or tax advice.