When a Tax Refund isn’t Optimal
By Ryan Goldsman, CFP®, PAIP®
I once had a person tell me “I like getting a refund, so I ask my HR department to take more money off my paycheque so I get one each year.” Needless to say, I was not impressed.
When a person owes money to the government at the end of the tax year, there is a standard grace period for it to be paid without interest. On the flipside, the government has rules in place that allows them to pay the “refund” within a certain timeframe, without having to pay interest. It’s a two-way street and with good reason.
For many Canadians, the additional tax refund is often a good thing as it improves their cash flows, but it’s important to be cognisant of what’s really going on. When we receive a tax refund, we’re effectively providing the government with an interest free loan. When we owe taxes, then the opposite is true. They’re providing us with an interest free loan as long as the tax owing is paid on a timely basis.
When filing one’s personal tax return, whether employed or self-employed, the deadline to pay one’s taxes for the previous calendar year is April 30th of the following year. Essentially there’s a four-month grace period to do the paperwork. Why not take advantage of it?