Many Canadians don’t realize that if they make monthly contributions to their RRSP they can actually increase the amount of money they get on each paycheque. Here’s how it works and how you can get more cash in your pocket.

Have you ever wondered why you get a tax refund every year? It’s not because the CRA is feeling generous. It’s because you’ve overpaid your taxes for the year. The government is actually paying you back the extra money you’ve paid them.

RRSPs reduce your tax bracket. When you contribute to an RRSP, your taxable income gets reduced. So if you make $50,000 and contribute $5,000, you’re actually taxed on $45,000. Of course, your employer doesn’t know how much you’re contributing, so the company deducts taxes from your paycheque based on your salary. When you contribute, and therefore reduce your payable income tax, you get back the tax money that was already paid to the CRA by your employer.

Now here is the real tip. If you contribute to your RRSP every month, you can actually get your payroll taxes reduced. Yes!! You have to tell the CRA how much you plan to contribute by filling out a special form.  Instead of getting the tax refund back at the end of the year, you can get it on every paycheque. It’s not extra money, but rather, your employer will deduct less payroll tax off each cheque as it will have a more accurate picture of your final income tax rate. Again, you won’t get any money back at the end of the year — at least not for RRSP reasons — because you’ll no longer be overpaying your taxes.

To do this, you’ll need to show the CRA and your employer that you are contributing every month. You’ll have to fill out form T1213, Request To Reduce Tax Deductions At Source. It’s not complicated, and we can help but you need to do fill it out again every year.
The real benefit of regular RRSP contributions isn’t the increase in your paycheque, making the contributions much easier, though it’s certainly a nice bonus. It’s that the earlier you invest, the more time those savings have to grow. So instead of waiting until the last minute to put money in your account, start today and have this month’s payments grow over an entire year.