You may think that receiving a tax refund is a good thing. After all, you're getting some money back, right?
However, getting a tax refund is not something you should aim for as it means that you did not do proper tax planning throughout the year. Here are several reasons why Canadians should never get a tax refund:
First and foremost, a tax refund means you gave the government an interest-free loan. When you receive a tax refund, it means you overpaid your taxes throughout the year. Instead of having that money in your pocket, you essentially lent it to the government interest-free.
This might not seem like a big deal, but it can add up over time. The money you overpaid could have been invested, earning interest or returns. Or it could have been used to pay down debt earlier and saved you on interest costs. By giving the government an interest-free loan, you're missing out on potential gains and/or savings.
Secondly, a tax refund can encourage bad financial habits. If you receive a large tax refund, you may be tempted to spend it on something you don't really need, like a new TV or a vacation. While it might be fun to splurge a little, this is not a smart financial decision.
Instead, you should have been using that money throughout the year to pay off debts or invest in your future. By relying on a tax refund to fund your lifestyle, you're not setting yourself up for long-term financial success.
Furthermore, a tax refund can be a sign of poor tax planning. If you consistently receive a tax refund year after year, it may be a sign that you're not properly planning your taxes. You may not be taking advantage of tax-saving opportunities or you may be underestimating your tax deductions. This can lead to unnecessary stress and financial hardship, especially if you're relying on that tax refund to cover expenses.
Lastly, a tax refund can delay your financial goals. If you're receiving a large tax refund, it means you're not getting your money until after tax season. This can delay your financial goals, such as paying off debt, saving for a down payment on a home, or investing in your retirement. By having that money throughout the year, you can start working towards your financial goals earlier and make more progress.
When you file your taxes this spring, and if you get a refund, consider that a wakeup call to do some better tax planning for next year. Even more so if you got a refund last year too.
Aim to break even with your taxes by properly planning and taking advantage of tax-saving opportunities. By doing so, you can have more control over your finances and set yourself up for long-term financial success.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.