Tax series: Tax refunds – straight from the horse’s mouth

My mum’s advice was: “Never look a gift horse in the mouth.” I looked at her blankly, so she explained it like this: If you get a windfall then don’t question it.

Growing up I used to get small cash gifts from kind grandparents from time to time. I worried that maybe my relatives couldn’t afford to be giving me these handouts. They were retired, after all – didn’t that mean they were unemployed (or something)? When I asked her about it my mum’s advice was: “Never look a gift horse in the mouth.” I looked at her blankly, so she explained it like this: If you get a windfall then don’t question it.

In case you’re wondering, the “gift horse” advice has nothing to do with the Greeks’ famous wooden horse trick during the Trojan War. Apparently you can tell the age of a (real, non-wooden) horse by looking at its teeth. If someone gives you a horse as a gift, it would be bad manners to pop open the horse’s mouth to check whether it’s a useful young Clydesdale or a hay-guzzling old nag. Simple as that.

Lots of people seem to take the gift horse approach when they get a tax refund from CRA. Instead of taking a good look in the horse’s mouth, they see the refund as a windfall – free money. Think about this for a minute. Where did the money come from? That’s right, if you get a refund then it’s a refund of your money. Not only have you not had the use of that money for the last few months, but you haven’t earned any interest on it either.

So what should you do if you get a tax refund this year?

  1. Take a closer look. Go through your tax return and work out where that extra money came from. Some things that could lead to a refund are RRSP contributions, child care costs, and medical expenses.
  2. Figure out if this was a one-off or something that happens every year. If you received an inheritance and used it to make a contribution to your RRSP then that is a one-off. In other situations it’s possible that with some planning you can hold on to your money and avoid receiving it as a refund only when you file your return.
  3. Take action if you need to. For example, if your refund results from daycare fees you paid during the year, you may be able to apply to have your employer deduct a smaller amount of tax from your salary this year. You would need to file a T1213 form with CRA, and if the form is approved CRA will give you a letter of authority to show to your employer that allows your employer to deduct less tax at source.

About the Author

Gael Melville


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