Every year, at the same period, it is the great race to the tax refund. Everybody hopes for and wants one; the bigger, the better.
Getting a massive tax refund is actually not that great. Simply put, it means you are over-paying on your taxes. In Canada, income tax is taken at the source i.e. from your salary, if you are an employee; and from installments if you are self-employed.
The money is remitted to the Federal Government. When you file your tax return, you either owe additional income tax or you receive a refund. Sometimes, you are at “zero”, meaning you don’t owe money nor are entitled to a refund.
A lot of people see a tax refund as being a windfall or new money. But, as indicated in its name, a refund is a repayment or a reimbursement made to a person for over-invoicing or for returned goods. It is definitely not new money; it is your hard-earned money that has been hoarded by the Federal Government.
The icing on the cake is that you don’t receive any interest on your refund. On the other hand, if you are one day late in filing your return or paying your taxes, you are immediately assessed with interests and penalties.
A lot of people also think they beat the taxman. Not necessarily. A $ 500 refund won’t make a huge difference on both sides, but let’s say you receive $ 5 000.
It means you have been overpaying by $ 416.67 a month. If you have debt, this amount could have gone a long way to reducing it. You would also have saved on interests. Or you could have invested that money. It would have earned you more than “zero”.
I am not saying you should feel guilty or be upset because you receive a refund. However, I am saying you should review your tax situation and make adjustments.
If you are an employee, ask for a TD1 form and ensure you claim all the credits you are eligible to. The second form that can help is the T1213 one. Canada Revenue Agency will then authorize your employer to lower your tax withholdings.
Filling in these forms will show on your paycheque. It is best to keep your money where it belongs in the first place, i.e. your pockets. The Federal Government does not need extra, free money from you.