Mikestrathdee’s Blog


In Praise of smaller tax refunds
January 1, 2009, 5:35 pm
Filed under: Financial Management, Investing, Work

Figuring out what to do with their income tax refund is an annual spring ritual for Canadians.
In 2006, the Canada Revenue Agency (CRA), our national tax collector, said that about 24.1 million tax returns were filed, of which almost 15.7 million individuals received refunds. The average refund was more than $1,300.
For some, tax refunds provide the means to top up children’s education plans or retirement savings. Others make an extra payment on outstanding debt, launch into this year’s home renovation project or plan their family vacation.
In the pre-parenting stage of life, tax refund time was one of a couple times a year that Carolyn and I would sift through appeal letters from charities and make decisions about one-time gifts. That may have been a response to hearing from a charity whose workers had to raise all of their own support tell me that spring was often the leanest period of the year for gifts.
Eastern Mennonite University had a great challenge in a recent ad. The headline, “Buy something or change lives?” asked people to consider investing their refund in kingdom work by helping students attend college.
Predictably, others are ready to pounce on our inclination to spend rather than share or save. Several American retail chains have a promotion to get people to spend their refunds right away. Kroger’s grocery stores, Kmart, Lands’ End and Sears offer to add 10 per cent to a tax refund, provided the entire refund is used to buy a gift card at their store.
Sometimes when I’m speaking to churches, I see if anyone is listening by suggesting that we shouldn’t get tax refunds. Christians who give regularly and substantially to the work of their congregation should not be receiving tax refunds—not big ones, in any event. It’s bad planning, unless your personal sense of patriotism and philanthropy extends to giving the government an interest-free loan every year.
While some people truly look forward to getting a big cheque or electronic transfer into their account, many people would be better off with a bit of extra cash flow every pay period throughout the year.
The federal government lets taxpayers request that their employer take less tax off their pay cheque if their situation indicates they will likely be getting a refund. You can get the “Request to Reduce Tax Deductions at Source” form from the CRA website (cra-arc.gc.ca) or your closest CRA office. The form must be completed each year, but only takes a few minutes to fill out. CRA will send back a letter within eight weeks indicating if your request is approved, and telling your employer how much less tax can be deducted from your pay at source.
Things that CRA will take into consideration in granting the request include regular RRSP contributions (other than payroll plans), childcare expenses, employment expenses, interest expenses and carrying charges on investment loans. Charitable donations are mentioned under the “other” category.
Curiously, our federal tax collectors, who keep statistics on everything under the sun, say they don’t keep records on how many Canadians apply to have less tax deducted at source. Nor do they do much to promote this concept.
But in the spirit of doing all we can with what we have, it’s worth exploring.
Mike Strathdee, CFP, is a stewardship consultant at the Kitchener, Ont., office of Mennonite Foundation of Canada (MFC).

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1 Comment so far
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