Why getting a tax refund in May is a bad idea

I've been aware of this for many many years, I've also been aware that many tax experts say it's not a good idea. Have I done anything about it, no. Am I likely too, probably not. Am I aware of what my refund is likely to be, yes. Would it be in my best interests to adjust that, probably. Could I trust myself to use it properly, yes. I know it sounds stupid, but it really doesn't bother me to allow the government to use a percentage of my money during the year, it seems I'm amongst a majority of Canadians that do so. The only thing that I would like to see change is some thanks from our government for we Canadians that do so, but I'm not holding my breath for that one.

While the article is correct in it's thinking, the link for form T1213 is dead. Here is the correct one, directly from the CRA website:

http://www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html

One obvious point it doesn't mention, and I see all the time, is for employees to fill out a TD1 AND a TD1SK (for Saskatchewan, TD1BC, TD1AB, you get the idea) and give the two forms to your employer to reduce the amount of tax they withhold. The TD series forms (stands for "tax deduction") are very easy to complete on your own. In fact, your employer is supposed to get you to fill these out when you start a new job, but rarely do so. They have to accept it from you and lower your tax deduction once you've given them the completed forms, and it doesn't require a letter from CRA confirming that the CRA accepts your calculations.

Link for TD1 and provincial TD form:

http://www.cra-arc.gc.ca/formspubs/frms/td1-eng.html?=slnk

I have had extra tax taken off for over 10 years and it helps me save money each year

Sometimes it's better to give a little more each payday and get a big chunk o' change at year end. It's like using the government as a "savings" account. You're not going to get much return via interest if you put those few, measly dollars in your Big 4 bank account... if you actually do think of putting some of it aside. Consider it as a windfall or "found" money and enjoy the "backpay".

What mistake? I like it this way. I don't need an expert to tell me what to do!

I work for a company based out of
Quebec but work in Ontario. I am taxed a full 50
percent at source. What can I do? It is very nice to get the lump sum in April/May.
I blame the Quebec Government not the Feds.

Bob
The easiest thing you can do is just stop working. When you do not earn or draw a salary there is nothing there for the Government to tax. Like most people you are probably not in the a position to just do this overnight, it needs to be planned for:
1. Live 50% within your means. i.e. buy the small house
2. Just say no to credit, no credit cards, no car loans etc.
3. Cut the “stuff” crap
4. Minimise you expenses. Be frugal
I worked in Quebec, hit the high end tax, year in year out kept working paying the Tax, working to live, then one day I said I have paid enough hundreds and thousand dollars in tax. I know me a single person makes no impact on the tax machine, but who gives a ..
Just stop playing the game that capitalisation expect you to play. Go back to living for a living rather than working for a living. Just think about it

Getting a tax refund is a surprise to me, because it means that I screwed up. Why would anyone overpay their taxes, just to get a return in May? Heck, just send me your money and I will refund you in a year with no interest. I plan my taxes each year so that I end up owing the government the maximum amount of tax in April without penalty or getting that nasty letter saying that I didn't pay enough taxes during the previous year.

Another shallow piece from the people that like to think 'they know better'. This 'article' is just crap.

While I agree that there is little real benefit to overpaying taxes, keep in mind that your only reasonable alternative, given how one accumulates the money might be to stick the it in a high interest (such as that is) bank savings account.

So, assuming you could get a 2% return - half of which is taxed away - the 'forced savings' of tax witholding becomes very attractive;

If you overpay your taxes to the tune of $10K you are looking at having foregone all of about $50 in your pocket (half of the interest you'd have collected at a 2% interest rate - and because you are 'building your savings', the average amount is half the total - so you get $100 in interest and pay half of that in taxes ) and good luck getting that 2% rate!!

Now, if you'd suggested that people put the money to paying their credit cards off, then the savings would have been more reasonable because you'd have paid down your card rather than paying Visa 20% while the government has your money for free.

However if you don't have high cost debt, there just is no point.

And, either way most people wouldn't have the discipline to actually properly manage this 'overage'. They'd spend it on 'stuff' and those with CC balances would still carry them. So letting the tax man hold it until May is worth the lost income - it amounts to less than the cost of a meal at McDonald's for the vast majority of people.

Great idea,when you look at pros and cons.Aperson would have to be disciplined,and willing to deny the feds the money they have been getting from joe public.
We are like sheep,to a degree only seeing dollar signs.I'm guilty as well but I will try to use reverse psychology and pay me first.
Old dogs such as myself can be taught new tricks. WWake up and smell the roses

Happy New Beginnings

Stan Parker KIngston

Yes the tax man.. If you have ever had the pleasure of being audited by the tax man your idea of cutting it close with the tax refund may change. My experience has told me never and I repeat never challenge the tax man and expect to win. Its is worth the loss of a minimal amount of intrest you could be saving on your tax refund rather than risk the nightmare of a tax altercation with Revenue Canada... Best to pay a bit more and get a refund. Sleep at night. And dream of smelling the roses....

I agree with Richard. I requested additional tax deduction every pay period. The little interest the gov't makes off this is extremely small as well as any interest I could get from a bank. For me, it's like a little savings plan for something extra in April. I'm satisfied with what I get and don't worry about what I may have to pay. Peace of mind is worth more than a few cents.

I have $40 extra taken off every cheque - it's barely noticeable. It's a small amount that would simply be whittled away in daily life but it's nice to get the chunk of money back after my taxes are processed. THis is my vacation money every year that I wouldn't have otherwise.

Yes, it would be nice to come out even with either the gov't or me owing any money. It would rather have it about even with a small refund is nice. This year will be the "test " as I just received Old Age Pension for the last six months so I will see after medical & charitable donations how things work out. Keep It Simple!

I work at an accounting company and I personally get extra money taken off every cheque and trust me when I say there are only a few handfuls of our clients who want to break even, a lot who get mad when they owe and there is no one who is upset when they get a refund in fact that is the first question they usually ask when they call to see how their taxes are going. They either says what's the damage? or How much am I getting back this time? They are always happy to get money back a few are disappointed when it is a small amount so I would say majority of Canadians prefer giving CRA a small loan.

I'm no financial genius but what I do know is that putting the extra money per paycheque towards your mortgage would save you thousands of dollars in interest over the long run. Don't think of the extra money as something to put in a "0.0001% p/a savings account" - instead, pay down debt. Sure, you could make a lump-sum payment with the full refund come spring, but upping your mortgage payment and/or making more frequent payments would save you a lot more in the end. By adjusting your mortgage payment the extra money per paycheque would not be lost to everyday expenditures.

This so-called "expert" is welcome to his opinions, but everybody's financial situation is different and talking down to people serves only to undermine his own credibility. People who live below their means and who manage to save on a regular basis quite often use different systems to achieve this. And using their tax refund as part of their savings/budgeting system is perfectly valid. Also, if you contribute to your RRSP and/or charities on a monthly basis, it is important to have some flexibility to redirect those funds if needed, without having to worry about incurring a large tax bill down the road. Not everyone's crystal ball is quite so clear.

Guys, all of that money that we are remitting to the government by overpaying our taxes in the hopes and expectations of a refund sits in high interest generating accounts. The governement is earning money on your potential refund. It makes much more sense to have tax reduced at source, and take your extra money and enjoy your own tax free savings account. Cheers!

I get extra taxes taken off of my cheque each week. I also get money taken directly from my chequing account into a savings account. Do you know how much I earn on that savings account while that small amount is accumulating through the year? 0.45%. Having 'extra' money show up at the end of the year (since I cant get to it during the year to use it!) is totally worth forgoing that pittance of interest!!