Don't waste your tax refund

The 2020 tax filing deadline has now passed and if you are like most Canadians, you probably waited until the last few days to send it in.

If you submitted your return on or near the April 30 deadline, and you are expecting to get a refund this year, you can expect to see your refund within eight weeks if you mailed it in or two weeks if you filed it electronically.

Only six per cent or so of Canadians still file by mail, so most will see this come back pretty quick. Those that use direct deposit with CRA (80% of Canadians) will likely see it a few days faster.

The big question though, is what will you do with that refund when it arrives?

Looking at returns processed up to April 29, the average amount for those who are receiving a refund was $1,834. And when surveyed, 68% of Canadians indicated that they would use that refund amount to pay down debt or invest it in savings.

There are two key problems with that figure though:

• In my experiences over many years in the financial planning industry, I can comfortably say that many of those 68% who said that are lying.
• There is still the other 32% of people who admit they plan to blow their refund on something frivolous.

If I had to guess, the actual figure is closer to half of those getting a refund plan to spend in one way or another. And why is this such a big problem in my mind?

Far too many people still look at a tax refund as “free money” that they are receiving. In reality, it is simply CRA returning your money that you overpaid to them.

If we’re being perfectly honest, getting a tax refund is a sign of poor tax planning throughout the year too as you should have never made that overpayment to begin with.

There have been countless articles written over the years on better uses for a tax refund.

In addition to paying down debt and putting the money into savings, you can do things like start or increase your emergency fund, invest in your education, make home improvements that will save on energy bills or even donate to charitable causes that you support.

The best way to look at this money is as if it was already sitting in your bank account. If you wouldn’t pull money out of your savings today to splurge on a shopping trip, then you shouldn’t be using your tax refund money for the same purpose.

If this message can reach just one of my readers and cause them to rethink a tax refund splurge this year, then I’ll consider it mission accomplished.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.