Personal Taxes - Refunds are a bad thing

Ok, I know this is a little late, but who has time to vent when they actually have work to do?  Not just work.  I have been busier than a one-legged man at the proverbial butt kicking contest.

“Right, personal taxes”.  Why does everyone out there think that if you DON’T get a refund your accountant messed up?  Why does everyone think that a tax refund is free money?

Ok, sometimes if you don’t get a refund your accountant did screw up, but most of the time that is NOT the case.  I am going to share some tidbits now for everyone to consider.

With the exception of a few rare cases you cannot get a tax refund unless you actually paid taxes during the year.  A tax refund means that you overpaid during the year.  If you are self-employed then you probably did not pay anything during the year, therefore you can’t have overpaid, which means that you are not getting a refund.

As stated above tax refunds are NOT free money.  They are a return of excess amounts paid.  In theory a tax refund is a bad thing (really bad thing).  Let me explain before you try and lynch me and call me a hieratic.   If you are getting a refund it means that you overpaid, which means that the CRA has had your money interest free for a whole year.  If you are getting a refund of say $2,000 or $3,000 then that is money you could have invested, used to pay bills, pay down your mortgage, pay down your credit cards etc.  Think about this, how much interest would your credit card company charge you if you had a balance owing of $2,000 for a whole year?  Well because the CRA had your money (interest free, don’t forget) you couldn’t pay off your credit card.  Maybe times are tuff and you are behind on your utility bills.  When you can’t pay your electric bill and Enmax cuts you off what happens?  That’s right you have to pay between $200 and $300 to have them reconnect you.  That means that the CRA having your money cost you at least $200.  All these things add up, but yet everyone thinks a tax refund is a good thing.  Start adding up all the times you got penalized, paid extra interest, or just paid regular interest (bank overdraft maybe).  I think I just saw a whole lotta light bulbs click on over readers heads.  Either that or summer finally arrived (so tired of snow, clouds, etc.).

Bottom line is this.  Refunds are bad.  It means the CRA has had your money interest free for a whole year, or at least a good portion of the year.  It also means you did not have it during the year.  Think of all the things you could have done.  Pay bills, contribute to an RRSP, kids RESP, invest, not go into overdraft, not have to juggle bill payments, etc.  I agree it sucks to have to pay the government, but it is better to pay what you owe when you owe it than it is to give someone everything in advance (interest free) and then get it back.  Keep your money and only pay what you need to when you need to.  If there is anyone out there who disagrees, please send me your excess money and I will give it back to you in exactly one year (no interest of course).