Lessons from the T4

Lessons from the T4

The little pink form has some powerful insights into how efficiently you are saving.


T4_322By now you’ve gotten your T4 in the mail. So now what?

The first thing you should do is read it, closely, said Jason Round, Financial Planning Support head at RBC.

The pink and red form has some powerful insights into how efficiently you are saving, he said.

The little boxes that capture your pension contributions are especially important. Line 207 for example is your registered pension plan (RPP) deduction for the year.

“If you look and there’s nothing in that box, it’s probably a good idea to do some investigating,” Round said.  Find out if your employer offers an RPP that you aren’t taking advantage of. Enrollment isn’t always automatic so it may take a little extra effort on your part but the payoff is worth it.

“Quite often if you do enroll it’s free money and it’s going to help with taxes.”

That’s because pension contributions work to lower your overall taxable income for the current year. Same goes for your personal Registered Retirement Saving Plan (RRSP) contributions.

If you make regular RRSP contributions on your own and you haven’t notified your employer, you should.

“There is an opportunity, for next year, to reduce your taxes at source so that your employer is taking less off of each paycheque in recognition that you are making regular RRSP contributions on your own,” Round said.

This can amount to significant savings, especially for young professionals. Eighteen to 34-year-old are the most likely group to make regular bi-weekly RRSP contributions, RBC research shows.

As far as this tax season is concerned, there are still ways to minimize your tax bill, and if you’re lucky, maximize your refund.

First and foremost, Round said, file on time. The April 30 income tax deadline is approaching fast and late filing can cost you. If you owe money to the federal coffers, you’ll be dinged a minimum of 5% of the balance owing, plus another 1% penalty on unpaid tax for every month that it’s late, up to a maximum of 12 months.

Not knowing is no excuse. The Canada Revenue Agency (CRA) will come knocking regardless.

With just over a month before the deadline, now’s the time to familiarize yourself with all the tax credits available to you.

Recently added is the children’s arts tax credit. Families may be able to claim a non-refundable tax credit of up to $75 per child for eligible expenses like an afterschool paint workshop. A similar tax credit is also available for physical activities.

If you take public transit to work every day, you can also claim the cost of your monthly pass. And there’s a $750 tax credit for first-time homebuyers.

Still chipping away at your student debt?

“With student loans you can actually deduct the interest and receive a tax credit back,” Round said.

Tax preparation software is pretty intelligent these days and easy-to-use questionnaires will help point you to the right deductions if you prefer not to take your receipts to a tax preparation specialist. The CRA publishes a list of NETFILE-certified tax software. Every program on this list is compatible with the CRA’s do-it-yourself online tax filing system and many of them are free.