« Spooked Bank of America registers 'BrianMoynihanSucks.com' | Main | Is real estate actually just like sex? »

December 27, 2021

Why getting a tax refund in May is a bad 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. 

Losing control of that money is a really bad idea, says tax expert Tim Cestnick, pointing to a recent study that tries to explain why most taxpayers are willing to be so generous. 

While mChequeost of the study participants understood that there was a cost to overpaying taxes throughout the year, the idea of receiving a 'surprise' refund appealed to them, much more than having to deal with the uncertainty of how much they might owe at year-end. 

In fact, many participants admitted to experiencing anxiety over the prospect of owing money in April and felt more comfortable with the forced savings/found money aspect of their getting a refund.

Good for them, but they're still making a mistake, Cestnick maintains. 

If you expect to claim any deductions or non-refundable tax credits that will reduce your tax bill (RRSP contributions, rental losses, child care expenses or charitable donations, to name a few) when filing your tax return each year, consider using Form T1213 to request a reduction in the taxes withheld from your pay throughout the year, Cestnick suggests.

If the taxman approves of a reduction in your taxes deducted at source, you simply provide the letter from CRA to your employer and your taxes deducted at work will be reduced. You’ll find Form T1213 online here.

As with all things bureaucratic, having one’s source deductions reduced takes some time – the CRA’s estimate is four to eight weeks. Get started today and you’ll probably be able boost your take-home pay  by sometime in February 2011.

Do you actually know how much you're likely to get back this spring? Could you say goodbye to it and improve your cash flow? Or do you not trust yourself to put the extra monthly income to good use?

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...