Average tax return $1,506: CIBC
Over half of Canadians expect a tax refund for 2010 according to a new CIBC Harris/Decima poll that surveyed 1,011 Canadians from April 20 – 27, 2011. The poll showed that of the Canadians who were receiving a refund for 2010, most expected to receive under $2,000. Canada Revenue Agency spokesperson Philippe Brideau said that based on the 20.2 million individuals who had filed by May 1, 2011, the average refund to date is $1,506.
So, what are Canadians planning to do with the refund?
While popular lore has the average Canadian splurging on that “all-inclusive” beach vacation, the poll indicates that nearly three quarters (72%) of Canadians who were expecting a refund plan to either pay down debt, invest it, or save it.
Of course, as I’ve written about endlessly in prior tax seasons, getting a tax refund is actually a sign of poor tax planning. After all, you’ve loaned your own money to the government, interest-free, for up to a year (or longer) only to get it back in the form of a lump sum amount this spring.
A tax refund typically arises when the amount of tax owing on your return is less than the amount of tax withheld from your income during the year. Employment income is the most common type of income from which tax is deducted at source. The amount of tax withheld is calculated without taking into account various deductions often claimed on your tax return, such as RRSP contributions or child-care expenses.
The poll showed that while 74% of respondents realize a refund is a sign of overpaying taxes through the year, it’s clear from the refunds being issued that few actually do anything about it.
Clearly, it would have been better to avoid getting a tax refund by having your tax reduced at source by your employer and having the use of the funds throughout the year, which can be used to increase your monthly mortgage payments or put toward an RESP or TFSA contribution.
The starting point should be to ensure your TD1 Form, “Personal Tax Credits Return,” on file with your employer is up to date. This form allows your employer to take into account various credits, such as the spouse or partner amount, the child amount, the pension income amount or even tuition paid in the year to reduce the tax withheld from each paycheque.
The second step is to file CRA Form T1213, “Request to Reduce Tax Deductions at Source.” The form is sent to your local CRA tax services office for approval and, once approved, the CRA will send you a letter of authority, which must be given to your employer, allowing them to reduce your tax deducted at source.
Following these two tips should allow you get your “refund” throughout the balance of 2011 instead of waiting till May 2012.