I Missed RRSP Season!!

Well I didn't, but every year in January and February we get the big banks, life insurers, and investment groups littering our radios and TVs with ads about "RRSP Season".

The banks and investment firms want your money now because the CRA has set up a deadline (usually the last day of February) where we can contribute to RRSPs and use the contribution to reduce our taxes in the previous year. The "limited time" sales pitch lets them sell you overpriced mutual funds and RRSP loans.

In February 2017 I contributed a small amount of money to my RRSP. Although I made the contribution in 2017, I will claim it on our 2016 tax return which we just completed. This means sometime in the coming weeks I will get a refund from the CRA.

My interest free "loan" to the Canadian government only lasted around a month and then I got my money back and put it straight to work again by contributing to our investments.

The Interest Free Loan

If you get a tax refund in April, it means you are essentially giving the government an interest free loan. It isn't a real refund. You simply paid too much all year and finally getting it back. This occurs because we normally pay taxes all year long, but only get a refund in April or May when we complete our actual tax return.

This loan can get quite sizeable if we make RRSP contributions, have substantial child care expenses, or make large charitable contributions.

Let's say I make a $5,000 RRSP contribution today. My tax savings on that is $1,525. If I don't claim my refund until next March when I do my taxes, I'm losing out on returns that money could have generated during the year. At 8%, that's $122. Better in my pocket than the government's!

We personally make our RRSP contributions in February of each year because of my current money management style. But in years past I used a neat little trick to reduce my taxes right away and put the money to work for me quickly.

The T1213: Request to Reduce Tax Deductions

A couple years back when my wife was still in school and we stupidly dove into real estate, money was a lot tighter around the Moose House. I was making a decent salary so we still had the ability to save some money.

I didn't really start putting money into TFSAs until 2014, but I tried to contribute as much as possible to RRSPs because of the tax refund. Yes, I was quite naive back then... Anyways, I did some digging and found out about the Form T1213 and quickly got on it!

Since I was contributing a set amount each month to RRSPs, I completed a T1213 requesting a tax reduction on my bi-weekly salary, noting my monthly RRSP contribution and the transfer of my wife's tuition credits. My paycheque jumped nicely and I put the tax refund to work for me right away instead of waiting until April for the big cheque.

Most years I actually had to pay the government a couple hundred bucks in April. That's exactly how I want it! Of course, while I had to pay a bit, my wife generally still got a nice refund so it balanced out at the end.

If you're making big RRSP contributions throughout the year, keep the T1213 in mind and put it to use if it's right for your situation.

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