Are tax discounters worth the money you pay?
Many Canadians look forward to a tax refund with eager anticipation. They consider it a tax-free windfall that they can spend without feeling guilty.
We’re so anxious to do so that close to 1 million of us choose to receive our tax refund on the spot, generally paying anywhere from 10 to 15 cents on the dollar for the privilege of having the money loaded on a debit card from places like H&R Block or Money Mart.
Tax discounters are allowed to charge no more than 15 per cent on the first $300 of the refund and five per cent of anything above that.
Most advisors decry the practice, arguing that an instant refund is a dumb way to pay to access your own money and that getting a refund in the first place means you've already provided the government with an interest-free loan.
Instead, they argue, you’d be better off waiting a couple of weeks and then using any refund to pay off debt or get started on some sort of rainy day fund. Better still, organize your affairs more effectively from the outset.
Talk to your employer about subtracting less tax from your pay using form TD1, particularly if you expect to make an RRSP contribution or are likely to be able to transfer some education credits from one of your kids.
By having your employer deduct less, you'll be able to to save and/or use these funds when you need them, instead of having to wait for a spring refund.
Have you used a discounter to get some cash in hand? Was the price worth the convenience? Would you do it again?
By Gordon Powers, MSN Money
Posted by: Austin Powers | Mar 28, 2021 2:16:51 PM
Actually Gordon, if a person`s refund is less than $600 it is to their benefit to get their refund discounted. The government has not changed the amount allowed to be charged since inception so has not kept up with inflation. If they paid for their return to be completed and sent in and wait for their refund, it would cost them more.
For those who get more of a refund, yes it may cost them a bit more. But perhaps they are in a spot and need it right away. Perhaps you do not know what that feels like but many of us do.
As for RRSPs not many people know how they work. Yes there is a tax deduction when money is put in and yes it grows tax free but when that 1000 grows to 2000 guess what, you pay tax on 2000 now. And unless you were in the highest tax bracket when you put the money in, the tax savings could be minimal. Unless your spouse won`t have income they can take it out tax free.
TFSA is the way to go if you ask me.
Posted by: bctaxpayer | Mar 28, 2021 5:06:43 PM
Last year my sister used H&R block for her refund, there was $1.99 charge each time she used the debit card plus the ATM charge of $1.50. It was not worth getting the instant cash refund. This year she is waiting.
Posted by: Christ1969 | Mar 29, 2021 11:58:08 AM
The funny thing about refunds is: IT'S YOUR OWN MONEY!
This year I ended up having to pay $700 instead of getting a refund. A co-worker called me a sucker and proceeded to brag about her $1000 refund.
Then I had to explain:
- During the last year, I had the extra $700 in my bank account. This was used to either pay bills without using credit, top up my TFSA or my RRSP. Meanwhile, I've been earning interest on my $700 I invested and not paying interest on anything I would've needed a credit card to buy because I didn't have cash.
- During the last year, she had that $1000 taken away from her pocket. Which means she may have had to use her credit card to buy something, and possibly pay interest if she's just a "revolver", didn't use that money to max out her TFSA, didn't use that money to max out her RRSP. And didn't earn interest on her investments during that year.
Who's the sucker now?
That's something people just seem to forget, that refund money is their own money which they overpaid. It's been sitting in the government coffers all year doing nothing to increase your net worth. And the higher the refund is, the worse it is for you. You could've made a lot of interest if you had that money in your pocket all year long.
So I guess it really comes down to one simple question: Are you a saver or spender?
- Spender: Better to get a refund at the end of the year
- Saver: Better to have to pay the government at the end of the year
Posted by: Christ1969 | Mar 29, 2021 12:04:40 PM
Austin powers: I completely agree with you; TFSA really is the way to go. I maxed out this year's contribution in January.
Everybody should focus on TFSA first and max it out as early as possible.
Posted by: terry | Mar 30, 2021 11:10:02 AM
I prefer it when I owe a few bucks on my taxes...why should I give the government more of my money all year long at no interest !! they get enough of our money already, its always better to pay a little than wait for your money back !!!
Posted by: Daniel McKay | Mar 30, 2021 6:12:49 PM
Who the hell is dumb enough these days to use H&R Block to begin with. I know several good accountants that are willing to do simple returns for around $100. Using H&R Block basically ensures you are getting the lower spectrum of tax "Professionals".
Posted by: Wayne Buchanan | Mar 30, 2021 9:04:31 PM
A tax refund for many low income earners is the only time in the year they have a few hundred dollars in their hands to do with as they please. Many pay outstanding debts or actually can take their kids on an outing ususally beyond their meagre resources. For others the tax refund is the result of having deducted 10 to 20 dollars extra per week to save in a location inaccesible until tax season. It works for these folks who probably live in a different world than Daniel Mckay. As a H&R Block employee I can personally attest to the competence and dedication of my fellow employees who work for far less wages than accountants and deliver our clients tax returns correct and in a timely fashion.
Posted by: Captain Ray | Apr 3, 2021 1:47:23 AM
I agree with with Christ1969, why would anyone want to give the government more money for an entire year without interest, no matter the amount and no matter the amount you make per year. Put the money you would've had taken off your check into your rrsp, or set aside in savings, into a tfsa or what ever you like. Take the power back into your own hands, and you can learn to save. This is based on the simple fact that it is your money NOW and that you do not get interest on this money. Take a minute to think about it and it will make sense.....more power to you.