Nearly 60% of Canadians are expecting a tax refund, with almost one out of four planning to use it to pay down debt, finds a CIBC poll.
“Our poll shows that Canadians still aren’t putting enough time and effort into tax planning,” says Jamie Golombek, managing director, Tax and Estate Planning, CIBC.
“Contrary to popular belief, getting a tax refund isn’t really a windfall. After all, what you’ve essentially done is loan your hard-earned money to the government, interest-free, for a year or more.”
The poll finds:
- 58% of Canadians expect a tax refund this year;
- 21% plan to reduce their high-interest debt by making a credit card or loan payment;
- 19% are either putting it aside or haven’t decided what to do with it;
- 18% intend to use their refund to pay for day-to-day expenses, such as bills or groceries; and,
- 13% plan to save or invest the funds.
Paying down debt has been the top financial priority for Canadians for five years running, finds CIBC, with 85% of Canadians trying reduce their debt levels.
“When deciding whether to pay off low-interest debt or put your extra funds towards savings, however, a bit more analysis may be needed,” says Golombek.
“Review practical considerations, such as current and future anticipated marginal tax rates, rates of return and cost of borrowing before deciding whether it makes sense to save or pay down debt,” he says.
Nearly 20% of Canadians expect refunds but have no immediate plans for the money.
Golombek says advisors can help clients to ensure that next year, their refunds are eliminated.
“If you’re an employee, subject to tax withholding at source, and you make regular RRSP contributions, you don’t have to wait until next spring for that refund,” says Golombek.
If your clients make RRSP contributions directly from their gross pay, they may immediately reduce the amount of tax withheld from their paycheques, he says. You can help them complete CRA Form T1213 Request to Reduce Tax Deductions at Source, in which clients can list, among other items, RRSP contributions to be deducted from their income when their employers calculate the tax that will be withheld from pay.
“Eliminate that tax refund altogther, and use the taxes saved throughout the year to your benefit,” Golombek says.