Why getting a tax refund is a poor idea
Getting a large tax refund each year simply means you’ve remitted too much tax to the Canada Revenue Agency throughout the year, essentially giving the government an interest-free loan.
That’s a bad idea, says Tim Cestnick, author of 101 Tax Secrets for Canadians.
While many employees understand that there’s a cost to overpaying taxes throughout the year, the idea of receiving a refund can be appealing since many view it as forced savings or found money. But it’s still a mistake, Cestnick maintains.
And getting it upfront from a tax discounter, by cheque or loaded onto a debit card, is likely worse. That's because it comes with a catch — a fee that can be as high as 15 per cent of the refund in certain cases — which, when you think of it, is a rather dim way to access your own money.
Next time, if you expect to claim any deductions or non-refundable tax credits that will reduce your tax bill (e.g. RRSP contributions, rental losses, child care expenses or charitable donations), consider using Form T1213 to ask your employer to reduce the taxes withheld from your pay throughout the year, he suggests.
And, once you get it, don't squander it, he advises. Use it to top up your TFSA or RRSP instead. Or, better still, pay down debt.
Are you waiting for your tax refund? Did you get it upfront from a tax prep service? What will you do with it when it arrives?
By Gordon Powers, MSN Money
Posted by: Bill | May 3, 2021 7:57:09 PM
My refund this year was $13,000. This really makes me angry. I have tried to get my company to increase my tax withdrawal, but they won't, saying that I don't know what I am talking about. It is obvious why it is always best to pay, NOT get a refund. The reason why my refund was so high was because of all the tax shelters I had, and these came at the end of the year. I had also cashed in on some big stock options, but getting the balance owing, or refund, at tax time within $10,000 is tough.