If you are reviewing your bank statement and notice a direct deposit with the note “Canada RIT” or “RIT/RIF”, it’s good news. It means that the Canada Revenue Agency has given you a tax refund.
What is Return Income Tax (RIT)?
Also known as a “Refund of Income Tax”, this results from an assessment of your tax return. Everyone who is employed in Canada has income tax deducted from their paycheque every pay period. At the end of the year, your employer totals your tax paid and puts the amount in the “Income Tax Deducted” box on your T4 slip.
When you file your tax return in April, you compare the tax owing to the income tax deducted on your T4 slip. If you have paid more tax than you owe, you will receive a Canada RIT deposit from the government as a direct deposit to your bank account.
Why did I get a Canada RIT?
Most people receive a tax refund every year and get a Canada RIT deposit. That’s because when they file their tax return, they can claim credits for a wide variety of items, including RRSP contributions and childcare expenses.
So is receiving a Canada RIT deposit good? Well, yes and no! It’s good because everyone loves to get money back from the government. It’s definitely better than having to write a cheque when you file a tax return. However, when you receive a RIT deposit it also means that the government has had your income tax return in the bank for the past year – and you haven’t earned any interest on it.
If your RIT is large every year, you can request that your employer reduce the amount of income tax deducted from each paycheque. In this way, you will have more money in your pocket during the year. Of course, be careful to maintain the income tax deducted at a reasonable amount or you could end up having to write a cheque at tax time.
You might also receive a notice of “Canada RIT payment pending.” This means that the funds will be deposited to your account very soon.
Who is eligible for Canada RIT?
Any Canadian who files an income tax return is eligible for an RIT tax refund. In addition, corporations may get one if they have overpaid corporate income tax.
Typically, people can expect to see one several weeks after they file their tax return. So, if you submit your return on the April 30 deadline, you should see the refund in your account in June or July.
You can also receive an RIT at other times of the year if the CRA reassesses your tax return. They may find that you paid too much tax and are therefore sending you money. Of course, they may also advise you that owe more income tax.
When you see the Canada RIT deposit on your bank statement, you can obtain more information by logging into your CRA online account. It should provide a Notice of Assessment explaining how they calculated your income tax refund. Alternatively, you can wait to receive the notice in the mail.
What should you do with a Canada RIT deposit?
This is a great question. Some people will see it as a windfall and simply spend the money. Go out for dinner or take a vacation.
However, financial advisers urge people to top up their RRSP or TFSA with the funds. Why? Because this is “found money” that you don’t need for day-to-day expenses. By investing it now, over the years it will accrue interest and add up to a tidy sum.
In addition, in the case of the RRSP, the funds will generate a tax credit that you can claim on next year’s income tax return. This will create a tax refund for next year. So, it leads to a virtuous circle where you continue to get refunds.
Does the CRA make mistakes on refunds?
It is possible that there is a Canada RIT mistake in your account. Perhaps the CRA accidentally deposited the funds to you – unlikely, but it could happen. If you see a Canada RIT deposit, log into your CRA online account and check why they have deposited funds. If you still believe that there is an error, contact the CRA immediately to let them know. It’s much better to fix the problem now rather than have the CRA reassess your taxes later when they notice the mistake.
Receiving a RIT/RIF Deposit
Getting a bank statement with a RIT/RIF deposit is good news! It does not mean that you are being audited. As we have indicated, log into your CRA account to review your Notice of Assessment to make sure that the correct amount has been deposited. Once you have confirmed that the money is yours, you can decide what do with it. You can spend it frivolously. Or you can invest it in your RRSP or another savings vehicle and reap the rewards years down the road.
