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my money coach

Yay! I got a tax refund!

Oh wait, maybe that isn’t so good?

by Tim St Vincent

A lot of people are very excited to get a tax refund from the government. I understand that response; it’s like a sudden windfall of unexpected money, of found money! I used to think that way too, until I realized that the money in the tax refund isn’t found money. It isn’t government money. It is my money. It was all along.

When you get a tax refund, what that really means is you have been kind enough to “loan” the government your hard-earned money by paying too much tax, and you let them use your money as they see fit for a year. When you file your tax return you get your money back.

Oh, and of course the government doesn’t pay interest to you for having borrowed your money. You see, when you get a refund, that means that you have paid too much tax, and the government is returning the excess portion to you. This is how you have “loaned” your money to the government, interest free. To get a $2,500 tax refund, you have effectively loaned the government $2,500 of your money for a year. The funny thing is that the government charges you interest if you’re late paying them; but, they don’t pay you interest for the privilege of using your money.

What could you have done with that money? Paid down your debt, like credit cards or the mortgage. By paying down that debt, you would save even more money by not having to pay interest on the portion you just paid off.

Triple windfall! You keep your money, pay down debt and pay less in interest! What a win-win for you!

So how do you do this? I am a retired financial planner, so I suggest you contact your current financial planner or adviser and discuss options. An easy thing to do is to reduce your tax deductions at source. That means your employer deducts less federal tax on each payday. To do that you typically need to show that you are making regular RSP contributions. Your financial planner and payroll person can help fill out the correct forms.

It’s still a good idea to have a few hundred dollars put aside for taxes, as this is not an exact science. My goal is to either pay no more than $200 in taxes or to get no more than $200 back.

Now for some, getting a tax refund can be a form of forced savings. People who don’t trust themselves to save money on their own can intentionally pay additional tax throughout the year. The tax refund then acts like a savings account or bonus money. It’s important that once you receive your refund to use it to pay down debt, apply it to savings or towards a goal.

No matter how you manage your taxes, whether you reduce taxes at source with your employer to increase your take home pay on every cheque, or if you use your tax refund to manage a forced savings program, use the money wisely. Paying down debt is always a good choice as it helps increase your cash flow by helping to reduce your interest payments.

If you have any questions, feel free to reach out to me here or you can contact me at

Have a great and healthy day!

Tim St Vincent is a retired CFP and is a Certified Educator in Personal Finance with the Credit Counselling Society, a Non-Profit organization. If you wish to contact Tim for a free workshop or webinar, have a question, or would like to submit an article idea, please contact Tim at 1-888-527-8999 ext 1330. You can also contact the Credit Counselling Society for further information or assistance at 1-888-527-8999 or visit or

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