# Another TFSA Question



## jwsclark19 (Nov 24, 2014)

Hi everyone, please bare with me as my taxation knowledge is more limited than most. I have some pretty significant room available for TFSA contributions, and I want to get the most possible out of it. 

Here is my plan:
Go to my employer and ask them to stop deducting income tax from each pay cheque. Then, take that money every 2 weeks that is no longer deducted and put it in my TFSA. Invest said money in some relatively safe investments. The total amount I would otherwise pay in income tax would be less money than the money I am currently able to to put in my TFSA. Is this legal, and would I face any penalty for doing this? If I am able to do this, I can basically save myself a full year of income tax. Also, When I go to withdraw all of this money in a few years (for a downpayment on a house), would I face any tax penalty?

Thanks a lot! It almost seems too good to be true if this is acceptable.

Cheers.


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## Spudd (Oct 11, 2011)

Money invested in a TFSA is money you have already paid tax on. Putting money in a TFSA will not reduce your tax bill.


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## pwm (Jan 19, 2012)

If your employer does not deduct the tax, then you will still have to pay it in April. As long as you will have the money at that time, when you file your tax return, then you can do anything you want with it in the mean time.


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## OhGreatGuru (May 24, 2009)

You apparently misunderstand TFSA'. As Spudd says, contributions to TFSA's are not tax-deductible the way RSPs are. So contributing to a TFSA will not reduce the income tax you owe on your earnings.

In any case, payroll deduction is not something you can usually opt out of. The employer has an obligation to CRA to deduct and remit it.


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## diharv (Apr 19, 2011)

Too good to be true indeed. But alas it is not true and not acceptable. I believe an application can be made to the CRA to have less tax taken off at the source to match the tax deductions for RSP contributions but asking an employer to not deduct any income tax at all will be flat out rejected . As an employer the CRA would come after me for not deducting and remitting.


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## Eclectic12 (Oct 20, 2010)

There's more items that can make one's case for reducing the withholding tax by filing T1213 "Request to Reduce Tax Deductions at Source for Year ___.
As several have pointed out -the TFSA is not one of them.

In the case of someone choosing to have the tax reduced based on scheduled RRSP contributions, it won't reduce the tax withheld to zero - so there seems to be a mismatch of expectations.


Should the OP decide that making use of the HBP is good for them, where the employer is not aware of the RRSP contributions, filing T1213 spreads a good chunk of the refund over the year instead of waiting until the tax return is filed the following year.


Cheers


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## Silverbird (Mar 5, 2013)

As the others have mentioned, you'll need to submit a T-1213 to the CRA, the CRA has to approve the reduced tax witholdings. If approved, you will get a letter from the CRA that you provide the employer, who will then adjust your pay witholdings.

The snag you'll be running into is that you need to give evidence to the CRA to approve the reduction; If you are "planning" to make contributions to an RRSP, but can't provide evidence of already making the payments or had a history of them via prior year tax returns, the CRA is unlikely to approve.

My wife and I get reductions for Charitable donations and Childcare. When we I apply, I give redacted copies of bank statements showing monthly payments made so far this year, the amounts are consistent with our tax filings for the past few years.


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## My Own Advisor (Sep 24, 2012)

@jwsclark19,

I would recommend the status quo with your employer paycheck. 

Meaning, you get your paycheck, you take the after-tax income you make and save what you can into a TFSA as much as possible. Then every year after you max out your TFSA, you make investment choices on money contributed inside the TFSA, i.e., index ETFs, dividend paying stocks, REITs, other.

Rinse and repeat every year.


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## Userkare (Nov 17, 2014)

Last November, I informed my employer that I was retiring at the end of April, and asked that the external contracted tax service should only deduct the 2014 withholding taxes based on my projected 1/3 year's income. They said it couldn't be done and acted like I was a criminal trying to defraud the government. They deducted each paycheck amount based on a projected income for the whole year. 

On the bright side, I can be proud that I've given our government an interest free loan, that hopefully they'll pay back when I file my 2014 tax return.

Good luck trying to get your employer to not deduct any tax. And by the way, if you end up owing money at tax time, there may be a penalty for insufficient installments. It used to be this way, but the rules may have changed.


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## OurBigFatWallet (Jan 20, 2014)

Virtually no one has zero tax deducted from their paycheques because they would face a nasty surprise in the spring (a hefty tax bill, and nothing paid towards it). As someone mentioned above best to leave paycheques deductions as is and then make room within your take-home (net) pay for TFSA contributions


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## amitdi (May 31, 2012)

I dont think you can ask your employer to stop TDS (tax deducted at source) without TD1 ot T1213. For 2015, make sure you atleast fill TD1 as it is self-authorized.

You need to do some basic reading on RRSP and TFSA. What you are saying about TFSA is actually true for RRSP. You can withdraw RRSP's $25000 for a downpayment but you have to pay it back over 15 years after you withdraw. Also it is legal to ask your employer to not deduct tax for the RRSP contributions. But for that you need to setup a pre-authorized payment plan or contribute first. then fill T1213 to CRA. (I have never done this myself).


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## Eclectic12 (Oct 20, 2010)

^^^^

Maybe it's because it's a smallish amount being contributed to the RRSP but so far, I've put the lump sum into the appropriate line of the T1213 and proof of PAP nor contribution have been required.

I do have sizeable charitable donations as well so that also might explain why it.


Cheers


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## the-royal-mail (Dec 11, 2009)

I think most people here and esp MOA understand this is a non-starter. OP is possibly confused about the whole TFSA concept, which is an account for AFTER TAX income. The tax has already been paid on that money.

I say do it as MOA suggests. We all have to contribute with after tax money.


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