Get Your Tax Refund With Every Pay Cheque

Many of us have recently experienced receiving a large tax refund. Although this is a welcome event, it is not the most effective tax planning. One tip is by modifying the amount of tax your employer withholds. Using your RRSP for retirement savings provides two great opportunities: a tax deduction and tax-deferred investment returns. If you make an RRSP contribution (other than through your payroll deduction) your taxable income is reduced which may result in an income tax refund. But an income tax refund is not necessarily a good thing. It actually means you've paid too much tax throughout the year and you are now claiming it back. In other words, you have given Canada Customs and Revenue Agency (CCRA) an interest-free loan until the time your tax return is processed and you receive your refund cheque.

One solution to this problem is to have your employer reduce your income tax withholdings to reflect the RRSP contribution you will be making during the year. To start the process, send a request to any tax services office of CCRA. Once approved, your employer will be authorized to reduce the withholding amount. The reduced withholding provides an excellent opportunity to increase or begin a monthly RRSP contribution or other savings strategy. Why wait to get a refund when you can pay less tax throughout the year.