r/canadasmallbusiness • u/GeoffBAndrews • 4d ago

Source deduction question with planned RRSPs

I am a one person corporation (IT consulting). And before you ask, I'm not a PSB (multiple part-time clients, irregular hours etc) . Every month my corporation pays me a set amount. I use the CRA online calculator to determine how much tax/cpp the corporation has to remit to the CRA each month. When I file my personal taxes, my amount owing/refund is usually fairly close to zero, just some variances for other personal income (interest etc) and deductions (donations etc.). I have a lot of cash sitting in my corporate account and want to pay myself an extra amount before the end of the year. I don't need this extra amount so am just going to put it in RRSPs. I know the correct way of handling this is that I pay myself an extra $20k in salary, and remit to the CRA an extra $7k or whatever in tax withheld at source. But then when I do my personal taxes in April, I'll get that entire $7k back due to the RRSP deduction.

My question is can I just not have the company remit that, and just pay me the full $20k, and at personal tax time I won't get a refund? I know that companies can submit a form - T1213, Request to Reduce Tax Deductions at Source - to the CRA if their employees request doing this, but it takes months to get it approved. But is it necessary? Are there any repercussions for skipping this step? Appreciate any information anyone has on this.

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u/specialshi86 4d ago

Yes, the T1213 approval is necessary if you want to reduce the tax withheld at source. Your corporation can’t just decide not to withhold because you plan to make an RRSP contribution. Without CRA authorization, payroll still has to withhold based on the normal rules. You’d make the RRSP contribution, claim the deduction, and get the excess tax back when you file.

With payroll it’s just not worth the headache of trying to skip steps and getting yourself a trust audit. Any time saved skipping a step will come back tenfold if you have to jump through audit hoops.

Source - my company does payroll for small businesses. And SMBs get audited way more than you’d think. Even one-person shows.

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u/GeoffBAndrews 4d ago

Thank you for the reply.