Posthaste: Canadians leaving free money from CRA on the table thanks to poor tax planning
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.
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Canada’s finances are heading back into the red after Finance Minister Chrystia Freeland unveiled new spending for the green transition and health care in the federal budget released yesterday afternoon.
Over the next five years, the government will increase spending by nearly $60 billion and no longer expects to be able to balance the books by fiscal 2027-28, as projected in the fiscal update last fall. The budget projects program spending will reach nearly $491 billion in the coming fiscal year, with the deficit now set to reach $40 billion.
Last fall, Freeland predicted a return to balance with a $4.5-billion surplus by 2027. But, that previous surplus is now a $14-billion deficit.
Ottawa is expected to end this coming year $43 billion in the red, compared to an estimated $36.4 billion just a few months ago. In all, Canada’s debt will climb by over $50 billion in the years ahead.
Toni Gravelle, deputy governor at the Bank of Canada, will speak at the 21st National Bank Financial Services Conference on the topic of market liquidity measures taken during COVID-19. Find the webcast here
The leadership of five First Nations and 80 of their members will converge on Queens Park to speak out against the Ford government’s mining agenda
Matthew Dunnigan, chief financial officer at Restaurant Brands International Inc., will participate in a fireside chat at CIBC Consumer and Retail Conference
Today’s data: U.S. pending home sales
Earnings: Dollarama Inc.: Canada’s largest retail chain selling items costing $5 or less posts its fourth-quarter earnings today. Most analysts rate the stock a buy, and are expecting the company to report around 14 per cent growth from the previous quarter. The Financial Post will have the story. Also reporting today: Constellation Software, Belo Sun Mining
Rising rates are exposing weak spots in the financial system and the next flashpoint could be real estate
Alternative minimum tax changes will make it harder for high-income earners to avoid paying taxes
‘Our country can’t borrow its way to prosperity’: Business reacts to budget 2023
If the Fed can’t get it right, why do investors always fall for the folly of forecasting?
Share buyback tax to raise $2.5 billion over five years, Liberals say
Timelines key as federal budget promises billions for green transition
Smart investors always have questions, and veteran investor Peter Hodson’s team has answered more than 155,000 of them in the past decade. But with all the market craziness during the past couple of weeks, it’s a good time to look at five of the most popular recent ones, including whether your banking deposits are safe and whether you should buy stocks that are trending downward. Here are five burning questions investors are asking.
Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.
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