SO you're getting an income tax refund. Congratulations! Any windfall is always welcome.
But if the refund is more than a few dollars, perhaps there's a way to access this money sooner instead of waiting until after you file your return.
Receiving a large refund means you gave Ottawa an interest-free loan during the year. You probably didn't mean to do this, so what happened?
Most likely, when you filed your return you claimed tax deductions or credits like an RRSP contribution, child care expenses, support payments, rental losses, business losses, interest expense on investment loans, charitable donations, employment expenses - or you had originally put yourself down as single as a form of forced savings to deliberately create a tax refund.
Whenever you know you will be claiming such expenses and that will create or increase a tax refund, you may ask to have less tax withheld at source by completing Form T1213; go to cra-arc.gc.ca/ E/pbg/tf/t1213/
Or if you aren't employed and pay tax instalments, you may reduce the amount.
Either way, you need to make certain your "raise" will work as hard for you as you worked for it. Otherwise, it will just disappear into general spending - which is the main reason people put themselves down in a higher tax bracket, because they know they are more likely to make better use of the resulting lump sum tax refund than if they had a few more dollars every payday.
Instruct your financial institution to redirect your raise to reduce debt, or accelerate an RRSP or other investment program.
And that's what you should do with this year's refund. Perhaps divide it up - for example, debt reduction 40 per cent, investment 40 per cent, "spend and enjoy" 20 per cent.
On the other hand, you don't want to owe Ottawa too much tax. Otherwise, you will have to start paying quarterly instalments or increase existing payments - which would be annoying if you owed tax only because of a one-off income event.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected].
