Canadians love their tax refunds, but it’s blinding them to better tax plan
Most Canadians who receive a tax refund treat it like winning the lottery. However, financial planners point out that you actually overpaid during the year, and your money could have been better utilized instead of simply being returned at tax time. Canadians who file a T1213 form can keep more of their money throughout the year, and can then put it to use in investment accounts such as an RRSP. Canadians need to think differently about taxes, and especially tax refunds, because if done correctly, they can keep even more of their money.
Key Takeaways:
- In the CIBC study, 63 percent of the 1,516 randomly selected Canadians didn’t know their tax refund was their own money, and instead believed that their tax refund was a “windfall of unexpected money.”
- Filling out a T1213 “Request to Reduce Tax Deductions at Source” can reduce how much tax is withheld from each paycheque, which allows individuals to allocate it to RRSPs or childcare when they are paid, instead of waiting for a refund.
- Instead of putting those funds into an everyday savings account, which taxes the interest income earned, choose investments with capital gains and dividends, which will be taxed less.
“The short-term euphoria of getting a tax refund that fades when you realize you’re getting your own money back,” Golombeck said in a release accompanying the poll. “A better plan is to ensure your portfolio operates as tax-efficiently as possible to keep more of your money throughout the year.”