You Shouldn’t Want a Big Tax Refund

Think that big tax refund is a win? It’s actually a sign your plan is broken. Jamie Golombek explains why getting thousands of dollars back in April means you’ve been giving the government an interest-free loan. Here’s how to fix your withholdings and get your money now, not next spring.

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What are 2, 3, 4 mistakes that you see most often from the average Canadian?

Well, the easiest one that I talk about more than anything is, you know, getting excited about your big tax refund. Uh, you know, we, I’m not talking about getting a few hundred dollars back. I couldn’t care less. If you’re getting back thousands of dollars every single April or May, there’s something dramatically wrong with your entire plan.

I agree.

And that means that you’re basically overpaying your taxes throughout the entire year.

The reason why most people get a large, I, I’m talking about in the thousands of dollars sometimes we’ve seen in the tens of thousands of dollars, is that they have deductions, in most cases, sometimes credits as well, that their employer simply doesn’t know about.

In other words, if you’re an employee, as most people are, I mean, you could be self-employed, in which case you can reduce installments and things like that. But most people who get big refunds are employees because their employer is required to deduct statutorily under, under law. They’re required to deduct the correct tax on your income, but they don’t know about all your other deductions and credits.

Uh, or at least most of them. And some of them, they know about the basic amount, spousal amount, you fill that in when you join the company. But most of the other stuff, like the juicy stuff like the RSP deductions, right? If someone’s divorced, the spousal support payments could be, you know, enormous, right?

Deductible, right? You could have, uh, significant charitable donations. We have got clients that give tens of thousands of dollars a year to charity that gives rise to a massive tax refund every year, right? So if you’ve got all these various deductions and credits that your employer doesn’t know about, um, then what you can do is you can apply.

Using a one page form to the CRA, you gotta do this every year for a reduction of tax at source. So the time to do that, by the way, is November. So, you, it takes it’s government, it takes them a long time to take them a lot and get it back to you.

And what they’re effectively doing is they’re authorizing because your employer can be fined severely for not withholding the right amount, right? So unless you get a approved letter, which is sent back to you, the taxpayer, uh, authorizing your employee, then send a copy. What I do is I scan it in to the CIBC HR department and they know exactly what to do.

They get lots of these. And, uh, within a few days by the next payroll, they are able to reduce my income to take into effect all my deductions and credits. So, in other words, instead of waiting till next April to get this big juicy refund, I’m actually getting it every two weeks.

As you go. Cash, right.