Have you recently received a deposit in your bank account labelled Canada RIT deposit? This is not something that you typically see often in your bank statement, so it can come as a bit of a surprise to some Canadians.
According to projections, over 19 million Canadians are eligible to receive an RIT deposit from the CRA (Canadian Revenue Authority).
Below, I’m going to tell you everything you need to know about the Canada RIT deposit, explain who’s eligible for it, and answer some of the most commonly asked questions regarding RIT deposits.
Canada RIT stands for Canada Refund Income Tax.
A Canada RIT deposit is often a refund from the taxes you filed from the Canada Revenue Agency (CRA). If you’re eligible, the deposit should arrive in your bank account shortly after you file your taxes.
Note that a Canada RIT deposit is not something that always shows when you get a refund for your taxes. It’s only given to a small number of eligible taxpayers, depending on the income taxes they paid for the previous year.
Sometimes, you can receive the deposit because the CRA has reassessed your tax returns and deemed that you are viable for a certain amount in tax refunds. In such cases, you may receive your RIT a bit later in the year than most taxpayers.
If your RIT deposit is the result of the CRA taking a closer look at your tax return, then the CRA will also send you a Notice of Reassessment, explaining why you received the RIT deposit. The CRA has a reassessment period of three years.
Canada RIT deposits are given to Canadian taxpayers who paid extra taxes during the previous business year. They’re most commonly awarded to those who work for an hourly wage, as these individuals’ paycheques can vary from one week to another.
Whenever you’re issued a paycheque, the CRA takes a percentage of your gross earnings as part of your income tax. Essentially, you’re taxed as if you make that particular amount every week.
However, many people earn a different amount from one week to the next. One week, you may work 40 hours; the next, you may work 30 hours.
When you file your taxes at the end of the year, the CRA looks at your net earnings for the entire year and places you in a tax bracket. The total amount of income tax you’ll be required to pay depends on how much you’ve earned collectively throughout the year, including income from second jobs or side businesses.
How Much Canada RIT Deposit Will You Receive?
Due to this discrepancy, many taxpayers end up paying more than they owe throughout the year. In some cases, you may have paid the CRA a surplus of hundreds or even thousands of dollars.
After reviewing your income tax return and calculating your owed taxes as a whole (based on all income sources), the CRA will give you back the extra income taxes that you paid throughout the year in the form of a Canada RIT deposit. The deposit is typically sent to the bank account that the CRA has on file for you.
The flipside of this is that some individuals may not have paid enough income taxes. This is often the case with self-employed individuals, freelancers, or those who work for tips.
For most people, paying higher taxes throughout the year and receiving a refund is more efficient than not paying enough taxes during the year and owing money to the CRA.
Canada RIT deposits are given out by the CRA once a year to eligible taxpayers. They’re typically awarded to those who paid extra on their income taxes or who qualify for certain tax credits.
The CRA can make the Canada RIT deposit for several reasons. Usually, it is not a substantial amount, but you should not be surprised to see a significant amount deposited in your account with Canada RIT as the description.
For Example: Person A has a CRA business account. Person A saw a deposit with the label of Canada RIT in their account a little while after filing their taxes. The amount could likely be a “Small Business Job Credit,” which can show up with the description of “Canada RIT.”
The amount can also appear in your CRA business account with a transaction description of “Job Credit 2020”. The small business job credit effectively brings down the Employment Insurance (EI) premiums from the current legislated rate of $1.88 to $1.60 per $100 of insurable earnings. Any company paying employer EI premiums equal to or less than $15,000 in those years is eligible for the credit. It is likely the case with Person A.
Naturally, when you see additional money show up in your account, you might want to celebrate. Getting a six-pack of beer might be a possible way to celebrate it, but you should be wary of spending it like that.
Here are some financially-responsible ways to use your Canada RIT Deposit:
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We all know how harsh the winter can get. It’s never a bad idea to invest in some preventative home or auto maintenance to ensure that you don’t get caught off guard later in the year.
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Some of the more popular ways to invest in Canada are stocks, ETFs and mutual funds. You can use robo-advisors, or trading platforms. Check out this article for some more suggestions on what to invest in.
When Will I Receive My Canada RIT Deposit?
Most Canadian taxpayers can expect to receive their Canada RIT deposit within a few months of filing their taxes. If you missed the tax filing deadline or filed late, then you may receive your RIT deposit later than your fellow taxpayers.
In reassessment cases, you could receive your RIT deposit at any time in the year. How quickly you’ll receive your Canada RIT deposit usually depends on how backlogged the CRA is.
Can I Receive A Canada RIT Deposit by Mistake?
If you ever receive a deposit in your checking account with Canada RIT in the description, I would advise checking with your CRA My Account to determine why you have received the refund.
In most cases, the CRA won’t send you a Canada RIT Deposit unless you qualify for it. Occasionally, a computer or agent error could result in you receiving a mistaken RIT deposit.
It’s always a good idea to double-check with your CRA My Account to make sure that everything is in order before you spend or invest the money.
The CRA has a reassessment period of three years. During this period, they can audit your tax returns and reassess your income. Sometimes, taxpayers (and even accountants) can make errors while filing their taxes that could result in an RIT deposit.
If the CRA finds any discrepancies during this three-year period, and determines that you weren’t eligible for a tax refund, then they may request the money back or use it against next year’s tax return.
As long as you and your accountant are filing your taxes accurately, though, this shouldn’t be an issue. After the three-year reassessment period, the CRA can no longer audit previous tax returns.
Track Canada RIT Deposit – CRA My Account
While you can track all of this over mail, I recommend setting up a CRA My Account.
Having the account provides you with instant and online access to your tax documents, any notices that you should receive, and the ability to perform various functions online that you would otherwise do by going to the bank or sending them mail.
For instance, you can make all the payments online and receive notifications like the Notice of Reassessment with the outline of your tax refund through an online portal.
You’re supposed to claim it on your tax returns whenever money is won, gifted, or paid to you. If your deposits aren’t pre-taxed, then you’re supposed to do your own maths and set the tax money aside so that you can pay it at the end of the year.
So is Canada RIT taxable? Thankfully, Canada RIT deposits issued by the CRA are not taxable. This means you’re free to spend, invest, or save every dollar of your RIT deposit without worrying about taxes.
The CRA typically requires you to claim all income on your annual tax returns. However, since your Canada RIT deposit is technically a surplus that you paid the previous year, you are not required to report it on your upcoming tax return.
The Canada RIT deposit is a refund tax credit that eligible Canadians receive for overpaying the CRA in income taxes. If you were fortunate enough to receive a Canada RIT deposit this year, then my best advice is to use it wisely.
No matter how small (or large) your RIT deposit is, you can leverage it as an investment or use it to take care of emergency expenses. It’s also non-taxable, which means that you’re entitled to the full value of your refund.
On the other hand, if you did not receive a Canada RIT deposit this year, then I suggest reading my conclusive guide on how to pay less taxes in Canada!