In Praise Of Smaller Tax Refunds
Figuring out what to do with the income tax refund is an annual spring ritual for Canadians. Canada Revenue Agency (CRA), says that in 2006, about 24.1 million tax returns were filed. Almost 15.7 million individuals received refunds averaging over $1,300 each.
For some, tax refunds provide the means to top up children’s education plans or retirement savings. Others make an extra payment on outstanding debt, launch into a home renovation project, or plan the family vacation.
In the pre-parenting stage of life, tax refund time was one of times that Carolyn and I would sift through appeal letters from charities and make decisions about one-time gifts. EMU, a U.S. church college, put out a great challenge in a recent ad. The headline, “Buy Something? or Change Lives?” asks people to consider investing their refund in kingdom work, helping students attend college.
Predictably, others are ready to pounce on our inclination to spend rather than share or save. Several U.S. retail chains have a promotion to get people to spend their refunds right away. Kroger’s groceries, Kmart, Lands End and Sears offer to add 10 percent to a tax refund, provided the entire refund is used to buy a gift card at their store.
Sometimes when speaking, I see if anyone is listening by suggesting that we shouldn’t get tax refunds. Christians who give regularly and substantially to the work of their congregation should not be receiving tax refunds – not big ones, in any event. It’s bad planning, unless your personal sense of patriotism and philanthropy extends to giving the government an interest-free loan every year. While some people truly look forward to getting a big cheque or electronic transfer into their account, many people would be better off with a bit of extra cash flow every pay period throughout the year.
The federal government lets us request that our employer take less tax off our pay cheque, if our situation indicates we’ll likely be getting a refund. You can get the form “Request to Reduce Tax Deductions at Source” from the CRA web site or your closest CRA office. The form must be completed each year, but only takes a few minutes to fill out. CRA will send back a letter within eight weeks indicating if your request is approved, and telling your employer how much less tax can be deducted from your pay at source. Things that CRA will take into consideration in granting this request include regular RRSP contributions (other than payroll plans), childcare expenses, employment expenses, interest expenses and carrying charges on investment loans. Charitable donations are mentioned under the “other” category.
Curiously, our federal tax collectors, who keep statistics on everything under the sun, say they don’t keep records on how many Canadians apply to have less tax deducted at source. Nor do they do much to promote this concept.
But in the spirit of doing all we can with what we have, I think it’s worth exploring.
Mike Strathdee, April 2008