« Teach your kids some financial know-how | Main | Love at first sight seals deal for majority of homebuyers »

May 03, 2021

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



Post a comment


Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...