Canada Revenue Agency provides employers with TD1 Personal Tax Credits Return
forms, both federal and provincial. Employees and pensioners complete the federal form, indicating which non-refundable tax
credits they can claim. If more than the basic personal amount is
claimed on the federal TD1, then a TD1 should also be completed for their province/territory of
residence. The total of the claimable credits is then
used to determine the employee's or pensioner's federal or provincial claim code, which is used
to calculate how much income tax will be deducted from their pay.
New employees must complete the TD1 form when they are hired, and are not
required to complete them again unless there is a change which may reasonably be
expected to result in a change to their personal tax credits. In this
case, a new TD1 must be completed within 7 days of the change. Where an
employer has not received a completed TD1 form, taxes will be calculated using
only the basic personal exemption.
Employees who do not provide their employer with a new
completed TD1 form when required may be subject to a penalty of $25 for each day
the form is late, with a minimum penalty of $100, and a maximum penalty of
Completing the form allows tax deductions to
be reduced if the employee is eligible for tax credits other
than the basic personal exemption. Students can report
their tuition, education and
textbook amounts on this form to reduce their tax
Other circumstances could require a change in the federal or
provincial/territorial forms, such as getting married or divorced, uniting with
or splitting up with a common-law spouse, turning age 65, or becoming eligible
for the disability tax credit
(doctor certification required).
The CRA T4032
Payroll Deductions Tables have tables indicating the federal and
provincial/territorial TD1 claim codes based on the total claims entered
on the TD1 forms.
Deduction of additional tax
If you have employment income, as well as income from sources
where no withholding tax is deducted, such as rental, investment, or
self-employment, you can avoid having to pay tax instalments by indicating on
your TD1 form an additional tax amount to be deducted.
Income less than total personal tax credits
If you are in a temporary or part-time job, and you know that
your total income for the year will be less than your total personal tax credits
on the TD1 form, you can check the box on page 2 of the form, and your employer
will not deduct tax from your earnings.
On page 2 of the federal TD1 there is a question for
non-resident workers. If as a non-resident employee, your taxable income earned
in Canada will be 90% or more of your world income for the year, you can
answer "yes" and claim exemptions available to you on page 1 of the
TD1. If the response to this question is "no", then no
exemptions are allowed in calculating payroll deductions. If "yes" is answered, and the total
exemptions are greater than the basic personal amount, then a provincial TD1
form should also be completed. See also our article on Non-Resident
Workers in Canada.
Individuals who have more than one employer at the same time
cannot claim deductions on more than one TD1 form. If total income from
all employers and payers will be more than the deductions claimed on the TD1
already filed with an employer, then the box "More than one employer or
payer at the same time" on the back of the TD1 form should be ticked, and
"0" should be entered on line 13 on page 1 of the TD1. Lines 2
to 12 should not be completed.
Letter of Authority to reduce tax deductions
An employee can submit form T1213
Request to Reduce Tax Deductions at Source to Canada Revenue Agency to
request permission for their employer to utilize certain deductions in order to
reduce tax withholdings. Examples of deductions are RRSP contributions
which have been made (not through payroll deductions), child care expenses,
support payments, employment expenses, carrying charges and interest expenses on
investment loans, charitable donations, and rental losses. It may take 4
to 6 weeks for CRA to provide a Letter of Authority, which would then be given
to the employer. The request will not usually be approved if the employee
has a balance owing, or has not filed outstanding tax returns.
Tuition carried forward and other
The TD1 form includes a line for tuition, which appears
to refer to tuition for the current year. We contacted the CRA
individual enquiries line to ask if this could also be used for tuition
carried forward from a prior year. One person said yes, and another
said no. It seems there are no clear guidelines in this area.
If you have deductions for the current year that you would like to use to
reduce your tax withholdings, but they are not included on the TD1, we
would advise you to contact CRA, and if still in doubt, complete and
submit the T1213 form as mentioned above.
Employers now have the ability to create a provincial
or territorial Form TD1 Personal Tax Credits Return and have the employees
send the form electronically rather than on paper. See Electronic
Form TD1 on the CRA website.