Before you embark on your first payroll of the year for your employees, it would be of interest to you to get your employees to fill out a TD1 form for both their federal and provincial portions of their tax withholdings. A TD1 form is a Personal Tax Credits Return. When filled this form can allow your employees to get larger net cheques as their payroll cheques will factor in some tax credits that they will usually receive when they file their personal income tax return. The advantage here is for those employees of yours who usually get refunds on their personal taxes each year. From a cash flow perspective, instead of waiting for your expected refund every April or May, you can get it over the course of 12 months within the calendar year. Conversely, if you expect a balance owing each year, you can request that your employer withhold more tax off of your paycheques each pay period to cover off the expected balance owing from your personal taxes. This may be advantageous to your employees as they can better budget for their needs rather than be faced with a large tax bill every April or May.

Another option of the form is to have no tax deducted at all. This will only be allowed if your employee’s annual income is below the aggregate total of personal income tax credits available to them for that year. Conversely, you can request a reduction in tax deductions. These reductions can only be allowed if you have a supporting case to claim deductions such as RRSP’s, child care expenses, employment expenses, and donations. To request a deduction you have to submit a form T1213 to CRA and get approval first, entitled “Request to Reduce Tax Deductions at Source”. Once a confirmation is received, you can implement it in your employee’s payroll.

In essence, the TD1 form moves around cash flow for your employees. Filling of the TD1 forms are completely optional. If you knowingly have tax credits and usually expect refunds when filing your taxes, you may feel that you like this scenario. If this is the case, just leave your TD1 form blank (meaning only have the “basic amount” entered)

As an example, let’s say as of January 1, 2013, you have $30,000 in unused provincial tax credits available to deduct for future years. Let’s also say that you start your first job in 2013. If your income is above $30,000, you would assume that the $30,000 in tuition credits would offset this income. This means that NIL taxes are owed to Alberta when filing your taxes and you will be entitled to a substantial refund. Now if you fill out the TD1 at the beginning of the year, you can get that refund in advance over 12 months of the calendar year.

Should you require these forms and worksheets for both the federal and provincial departments, CRA provides them online. The 2013 version can be found here.

http://www.cra-arc.gc.ca/formspubs/frms/td1-eng.html

 

If you would like more information on the above we would gladly be able to assist you with your needs.