Man­ag­ing Your Money: Why you don’t want a tax re­fund

The Southwest Booster - - NEWS -

An­ice, fat tax re­fund cheque feels nice but, when you stop and think about it, you may be bet­ter off fi­nan­cially if you didn’t get it. The re­al­ity is that your re­fund isn’t a gift from the govern­ment – it’s your money that you over­paid in tax de­duc­tions from your pay cheque over the course of the year. And the govern­ment has that money for its use, in­ter­est-free. In­stead of work­ing for you this year, your money has been work­ing for the govern­ment.

Get­ting a big tax re­fund is not good tax plan­ning. Here are a few tips to help you keep more of your money work­ing to­ward your fi­nan­cial goals – as well as a few ways to use this years’ tax re­fund (if you got one) to en­hance your fi­nan­cial fu­ture.

How not to get a tax re­fund

1. Keep more of each pay by re­duc­ing the amount of tax with­held Each pay pe­riod, your em­ployer with­holds a por­tion or your pay­cheque and sends it to the Canada Rev­enue Agency (CRA) to cover your es­ti­mated year-end taxes. If that amount is ex­ces­sive, you’ll even­tu­ally get a re­fund cheque – but it’s much more fi­nan­cially ad­van­ta­geous to ap­ply to have it re­duced by sub­mit­ting a T1213 form to CRA – that way, you’ll keep a few ex­tra dol­lars each month that you can in­vest for you own ben­e­fit.

2. Pay tax in­stall­ments on time If you are on a quar­terly per­sonal in­come tax pay­ment sched­ule, your in­stall­ments are due on the 15th of March, June, Septem­ber and De­cem­ber. Avoid penal­ties and in­ter­est by al­ways mak­ing your pay­ments on time.

3. Get an early RRSP de­duc­tion A com­mon rea­son for a tax re­fund is a Reg­is­tered Re­tire­ment Sav­ings Plan (RRSP) con­tri­bu­tion de­ducted at tax time. But if you’ve made your con­tri­bu­tions ear­lier in the year, you can ap­ply to the CRA (us­ing form T1213) for a Let­ter of Author­ity that al­lows you em­ployer to re­duce the with­hold­ing taxes on your reg­u­lar pay­cheque based on the amount of your RRSP con­tri­bu­tion. If you make RRSP con­tri­bu­tions through pay­roll de­duc­tions, you don’t need a Let­ter of Author­ity – just ask your em­ployer to ad­just your tax with­hold­ings to re­flect your RRSP con­tri­bu­tions.

How to get the most from your tax re­fund

1. Pay down high-cost credit card debt.

2. Make an ex­tra mort­gage pay­ment. 3. Pay off your RRSP loan. 4. Max­i­mize your RRSP and TaxFree Sav­ings Ac­count (TFSA) con­tri­bu­tions or top-up con­tri­bu­tion room from past years.

5. Add tax-ad­van­taged Cana­dian eq­ui­ties to your non-reg­is­tered port­fo­lio.

Get more of your money work­ing for your fi­nan­cial ben­e­fit by not get­ting a tax re­fund and by talk­ing to your pro­fes­sional ad­vi­sor to­day.

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