Get next year’s tax refund this year

It’s almost impossible to totally avoid paying taxes and, with this year’s tax deadline rapidly approaching, your options for reducing your 2008 tax bite are limited. Even so, you can still take advantage of some effective tax reduction strategies and get next year’s tax refund this year.  Here’s how.

Pump up your paycheque. Payroll deductions are a fact of life – but paying more taxes than necessary isn’t the best strategy. It’s nice to get a tax refund but you’re really only getting your money back – the extra dollars you sent to the federal government as a tax-free loan each pay period. If you expect a refund this year and are confident the same thing will happen next year, you can apply to have your employer reduce the amount of tax deducted from your paycheque. 

When you were first hired, your employer had you complete a Personal Tax Credits Return form (TD1) that included all the deductions and credits you normally claim in a year. If your circumstances have changed since then, making you eligible for additional deductions (child care expenses or spousal maintenance, for example), your taxable income and your tax bill will be lower now. So reduce the amount withheld from your paycheque each month by filing a T-1213 form. (Available from your local CRA office or from the CRA Website, www.cra-arc.gc.ca. Québec clients also have to file the Québec form TP-1016-V.)  

Pump up your registered savings. To get the most out of your RRSP, you need to get the most into it as fast and frequently as possible. That means making your maximum contribution every year and making up for any unused contribution room from previous years. (There’s no time limit on when you can catch up but sooner is better.) The best strategy is to make regular RRSP investments throughout the year instead of contributing a lump sum at the deadline. That way you’ll have more money working harder and longer in your plan, which can add significantly to your retirement nest egg. 

It can be tough to find money to invest just before the RRSP contribution deadline but it’s much easier to pay yourself first through a Pre-Authorized Contribution (PAC) program that automatically invests an amount you can afford each month. And a PAC can also help you get next year’s tax refund this year because you can apply to further reduce the taxes your employer withholds from your paycheque by the amount of your monthly PAC.   

To minimize your taxes and maximize your financial life, talk to your professional advisor.

This column, written and published by Investors Group Financial Services Inc. (in Quebec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.