Tax refunds are heavily misunderstood. Some people may take them as cash windfall, but the cold heart truth is that it has always been YOUR money. Getting a check after filing your taxes mean that you’ve paid too much income tax throughout the year and you just gave the CRA an interest-free loan while you miss out on a little extra money each pay cheque.
While many had already planned how to put that tax refund to work, certified financial planners are saying that a smart way to approach this is through careful planning and to break even when filing for taxes. A tax refund is a 12-month interest-free loan to the government; instead of handing it back to the CRA during tax season, you could have invested it and earned a return.
Ideally, you should aim to having zero balance when you’re filing your taxes because, again, those excess could have been placed to proper use had it not be planned carefully. If you did not receive any refunds, that means you’ve paid the right amount of tax during the year and no unnecessary excess payment has been made, and this should be everyone’s tax planning goal throughout the year.
In order to stop over-paying the government is to review your tax situation. If you are employed, your completed TD1 Form is what companies use to determine how much tax should be withheld from your pay cheque. But, you also have to be aware that this should always be updated every time your situation changes.
You also have to examine any major changes in your life that merits a review before you start filing your taxes because tax refunds are a real sign that you really have poor tax planning and you could be giving the government the money that you could have kept throughout the year.