While many Canadians this tax season are busy filing returns and dreaming up ways to spend their refunds, it’s likely they’re also leaving free money on the table because they didn’t plan ahead.
Canadians appear to be lax on year-round tax planning, with only 22 per cent making it a regular focus, according to the latest instalment of IG Wealth Management’s yearly tax study. People also don’t think year-round tax planning is all that crucial, with more than one-third calling it “not important at all.”
Still, many suspect their current strategy might not be working for them. Only one in 10 think they’re taking advantage of all the tax credits available to them, the survey said. Those results suggest that some Canadians are potentially missing out on much-needed funds that could help them pay for rising costs from high inflation and interest rates, IG Wealth Management said.
“It’s concerning that most don’t think about a tax strategy until tax time,” Damon Murchison, chief executive of IG Wealth Management, said in a release. “Making tax planning a regular activity can help reduce your overall tax bill and help you take advantage of all available tax deductions and credits.”
At the same time, many are also failing to pay attention to the tax consequences that come with buying big-ticket items, such as a home or vehicle, or the implications of pouring large amounts of money into renovations. Only 42 per cent reported considering the impacts of such spending on their tax returns, the survey said. As a result, come tax time, people end up working against the clock to figure out how those big purchases factor into their returns and overall finances.
“Scrambling to make sense of your assets at tax time is inefficient for you and your money,” Murchison said.
Tax refunds are another area where Canadians are missing the mark, IG Wealth Management said. People tend to think of their tax refunds as a “bonus,” the study said, with more than half using the money to buy something fun for themselves or family. Another 44 per cent throw their refunds into investments. In all, 85 per cent think getting money back from the Canada Revenue Agency each year is a positive, and 60 per cent go out of their way to boost those refunds. But IG Wealth Management said refunds are actually a sign of inefficient planning.
“Contrary to popular belief, having a larger tax refund is not necessarily a good thing,” Murchison said.
That’s because getting a big chunk of money back after filing is a signal the CRA has taken too much tax off your paycheque throughout the year, the study said. And that’s definitely not in your best interest, because it means your money ends up working for the government instead of in your own investment or savings accounts, where it belongs.
“Although it might feel nice to receive that money after you’ve filed, you have lost out on interest, investment and spending opportunities throughout the year,” Murchison said.
To make sure you’re making the most of tax opportunities, IG Wealth Management suggests working with a financial adviser, who can come up with a year-round tax plan that better lets you take advantage of credits and deductions available, and might help you hit your financial goals sooner.
IG Wealth Management conducted the study in partnership with Pollara Strategic Insights, which surveyed 1,535 non-retired Canadians above the age of 18.