Reduce your income tax
payments now for
current RRSP contributions
When RRSP contributions are made, income tax remittances
can usually be reduced.
a. Employees
When contributions are made
to an employee's registered pension plan (RPP) through
payroll deductions, the amount
of income tax deducted is automatically
reduced. The same is true when payroll
deductions are contributed to the employee's (own or
spousal) registered retirement savings plan (RRSP), as
long as the employer has reasonable grounds to believe that
the contribution can be deducted by the employee in the
year. Canada Pension Plan and Employment Insurance
premiums are not affected.
When an employee has made a contribution which has not
been automatically deducted by the employer, a letter of
authority from a tax services office must be provided to the
employer in order to reduce income taxes deducted. To get this letter, the employee must
complete a Form
T1213 Request to reduce tax deductions at source, and
provide documents to support the request for the tax
deduction. It may take 4-6 weeks for Canada Revenue
Agency to process the request.
For more information see the Canada Revenue Agency
article on reducing
remuneration subject to income tax, which is in T4001
Employers' Guide - Payroll deductions and remittances.
b. Self-employed
Self-employed people must make installments of income
taxes based on one of three alternatives:
When the current year option is used, any contributions
made to RRSPs will reduce the current year estimated taxes
owing. However, if the installments you make under the
current-year option are too low to cover current year taxes,
you may be subject to interest and penalty charges.
More information on the payment options for self-employed
individuals can be found on the CRA publication P110
Paying your income tax by installments.
Tax tip: don't overpay
your income taxes - you are just lending money to the
government instead of investing the money yourself and
earning income from it!
