In a new CIBC Harris/ Decima poll, almost 75% of Canadians are expecting a tax refund this year plan on using it to pay down debts or built up their savings.
The poll found that only 8% of Canadians plan to spend their refund.
Other key findings in the poll include 55% of Canadians have received or are expecting to receive a refund; 42% plan on using their refund to pay down debt and 30% plan on saving it or investing it. 47% of Canadians expect their refund to be less than $1,000 with only 5% expecting it to me more than $5,000.
With what has been said, it is great to see the majority of Canadians planning to pay down their debts, or save their tax refund. It is a clear sign that Canadians are focused on getting their finances in order, and putting their money towards a good cause, rather than carelessly spending it without thinking of the consequences.
Jamie Golombek, CIBC’s head of tax and estate planning explained that getting a refund each year is poor tax and financial planning as it is a clear sign that you are overpaying on your taxes throughout the year. When you first glance at the cheque, you feel it is a great deal, however in reality, you are only getting back your own hard earned money back.
In fact, the survey found that 74% of Canadians know that they may be overpaying taxes on their regular paycheques if they are getting their refund this time of year.
What can be done to not overpay on your taxes?
Golombek noted that the reaction Canadians have to getting their refund as “intoxication”, which is a short term euphoria that is associated with a tax refund, however that quickly fades when you begin to realize that you are getting your own money back, interest free, over a year later.
The question that now comes up is what can you do to keep your money, reducing your overall taxes.
Golombek has recommended that Canadians look to reduce their taxes at the source, and that would be your employment income. You have to ensure that your credits your employer is using to calculate your payroll is up to date.
It is important that you ensure your employer is doing all they can to ensure you are not overpaying on your taxes. Although it might not seem like a big deal, especially since you are getting back the money in the end, however there is a lot you can do with the money if you get it right away. Rather than have your money sit with the government for a year, you can invest it and earn more money on it.
Golombek illustrates the benefit of reducing your taxes at the source in his new report, “Intaxication: Why getting a tax refund may be a sign of poor financial planning”.
It can be very beneficial if you can get your money immediately, rather than wait for your yearly tax refund, however as good as investing may be, some people might just work better having a lump sum come in and they allocate their funds accordingly. If you prefer to invest your money and earn on it, it is important you look at reducing your taxes at the source.
How do you feel about getting a tax refund?
image source: jmv