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.