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TD1 Forms Determine Your Tax Withholdings
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.
The federal and provincial/territorial TD1 Personal Tax Credits Return forms can be found on the CRA website.
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 $2,500.
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 deductions. The Liberal platform included elimination of the education and textbook amounts for 2016, but these are still shown on the 2016 TD1 forms available in December 2015.
Although the federal child amount tax credit for dependent children under 18 was eliminated for 2015 and later years, the Family Caregiver Amount (FCA) is available for a dependent child with a mental or physical infirmity. In 2014 the FCA was used to increase the child amount for a child with a mental or physical infirmity.
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.
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 Carry-Forwards
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.
Commission employees who are able to claim expenses (see the employment expenses article) can complete the TD1X, Statement of Commission Income and Expenses for Payroll Tax Deductions, so that their expenses are taken into consideration in the calculation of the income taxes deducted from the commission.
Quebec TP-1015.3-V Source Deductions Return Form
The Quebec equivalent to the TD1 form is the Source Deductions Return TP-1015.3-V, found on the Revenu Quebec website.
Employers - Electronic TD1 Forms
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.
T4001 Employers' Guide - Payroll Deductions and Remittances - Chapter 5 - Deducting income tax
Tax Tip for employees: Update your TD1 forms if you have changes to your non-refundable tax credits.
Revised: October 31, 2017
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