RRSPs RRIFs and TFSAs -> Reduce income tax payments
Reduce Your Income Tax Payments Now for Current RRSP Contributions
When RRSP contributions are made, income tax remittances can usually be reduced.
When contributions are made to an employee's registered pension plan (RPP) or group RRSP 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 (CRA) to process the request. The form required for reducing Quebec tax deductions at source is TP-1016-V Application for a Reduction in Source Deductions of Income Tax.
For more information see the CRA article on reducing remuneration subject to income tax, which is in T4001 Employers' Guide - Payroll deductions and remittances.
Self-employed people must make instalments 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 web page 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!
Revised: September 19, 2017
Copyright © 2002 - 2017 Boat Harbour Investments Ltd. All Rights Reserved See Reproduction of information from TaxTips.ca