Average Tax Refund Grows $200 to About $1,440
Last week, the CRA released figures for the average tax refund for the 2007 tax season.
They touted the government's tax relief measures as the reason for the significant increase in refunds. But what do these large refunds mean for the average Canadian? It means that, on average, the government is withholding over $100 too much from the taxpayer's income each month. While some taxpayers consider this to be a form of forced savings (you don't miss what you don't see), is this really the best use of their money?
Other potential (more beneficial) uses might be:
- If the taxpayer has credit card debt, pay down that debt by $100 every month (interest savings @19% interest: $104 in the first year);
If the taxpayer has a mortgage, increase the monthly mortgage payment by $100 (potential savings on a $100,000 mortgage for 25 years @ 7%: $33,211 - plus the mortgage is paid off 6 1/2 years earlier);
Deposit $100/month into an RRSP (potential accumulation over 20 years @9% income is over $64,000, not to mention the tax refunds generated by the RRSP deposits);
If the taxpayer has no debt, and has maxed out RRSP contributions, invest the money at 4% interest (potential interest $26/year - less tax on the income of about $10, depending on the taxpayer's income level).
The key is to get the employer to withhold less income tax from each paycheque. There are basic techniques that employees need to use to allow the employer to withhold less.
Make sure that the TD1 Personal Tax Credits Return form is completed properly. All amounts to which the taxpayer is entitled should be claimed.
If the taxpayer has any of the following deductions or credits, which are not accounted for on the TD1 form, then Form T1213 Request to Reduce Tax Deductions at Source should be completed and submitted to the employer.
- RRSP contributions
- Deductible Support Payments
- Employment Expenses
- Carrying Charges
- Charitable Donations
- Rental Losses
Taxpayers should always remember this: a refund is not a good thing!
Let us know how your clients feel about getting a tax refund - vote in our poll question below.