I just received my quarterly statement from ING Direct, with whom we save our money. I like reading their newsletter, as it occasionally has something interesting for me, such as when I learned about high-interest US dollar savings accounts. This particular edition is geared towards tax time, since the deadline is April 30 to submit your returns. It begins, “Everyone loves a tax refund (well, maybe not the government).”
Not me, either.
A tax refund means the government, specifically the Canada Revenue Agency, had money that was rightfully yours, and they definitely don’t pay you interest for your over-contributions through source deductions! When you receive a $1,000 refund and enjoy it, you are willingly submitting to a short-term forced savings program that earns you no interest. No thanks.
The sweet spot seems to be owing the CRA just short of $2,000 per year at tax time, which I recommend paying exactly on April 30 and not a moment sooner! Owing them money means that you had their money interest-free for on average six months, and not the other way around. You can earn interest on that money, even at a measly 3%, rather than let the government do that. Anything more than $2,000, though, and they might sign you up for tax instalments, which is just another short-term forced savings program that earns you no interest. Avoid it.
If you are an employee, you can petition the CRA to reduce your deductions at source. I have never done this, so please contact someone who has done it to learn how. As I am my own employee, I can choose more flexibly when my source deductions are remitted, so I can keep my money out of the government’s hands longer than most employees can.
Stop loving tax refunds. Let them start to make you a little angry. Do what you can to avoid them.
Hi Joe & Sarah,
Thanks for the insight. I was checking out Rainsberger.ca for a link to the evite responses.
I believe this is the CRA publication you were looking for:
http://www.cra-arc.gc.ca/E/pbg/tf/t1213/t1213-04b-e.pdf
Also, a fact one of my previous employers didn’t appreciate me advertising to my clients when I thought they would be better off contributing to an RRSP through their employers, rather than at MY employer to realize an immediate tax benefit. Because your contributions are deducted from your taxable income every pay, you receive tax relief throughout the year, rather than all at once after the CRA finally processes your tax return.
@Barb, one of the advantages to being my own boss is that I can easily approve direct employee RRSP contributions to avoid having to remit withholding tax on the contribution to the CRA. I still have to pay the associated CPP contribution, but that’s minimal by comparison. This way, I don’t have to remit money in November just to get it back sometime in the spring.
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