May 8, 2014, 5:49 am

The Least Satisfactory Tax Return of my Life

by: The Financial Blogger    Category: Taxes
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Last year, I decided to stop procrastinating with my tax return and completed everything in March. I was happily surprised to see how fast I got my tax refund back! I decided to do the same thing this year and I already cashed in my tax refund last week. Sometimes, the Government can be faster than you think!




The notice of assessment (NOA) is the document you get back from the Government confirming how much you earned, your tax credits and how much you have paid in taxes. If you paid too much tax during the year, you get a nice check along with your NOA. This usually happens if you can deduct an amount from your earned income or if you are eligible for specific tax credits. For example, I had deducted my RRSP contribution and I’m eligible for several tax credits because I have children.


My employer calculated the tax to be paid on a salary of X. Let’s say I make 100K/year and I should pay an average tax rate of 35%. This means I pay $35,000 in taxes throughout the year. Imagine I invest $10,000 in my RRSP and I’m eligible for a $2,000 tax credit for my children. My tax able income is reduced by $10,000 (the RRSP contribution) . This means I should pay 35% taxes on $90,000 and not $100,000. The total tax due is then $31,500 (35% of $90K). Then, I receive a tax credit of $2,000. The tax credit doesn’t reduce my taxable income, it reduces directly the amount of taxes due. My taxes for the year drop to $29,500. Since I’ve paid a total of $35,000  from my pay check, the Gov’t will give me back a nice check of $5,500. Wow… I wish my example was the real life! Hahaha!


On the other hand, if you have earned other sources of income throughout the year and haven’t paid taxes on them (investment income, rental income, second job, etc), you may end-up paying more taxes after filling your report.




I always look forward opening this letter from the government for two reasons: #1 I usually get a nice check. #2 This document confirms how much I earned last year. This always makes me proud and reminds me that I should appreciate having such a great job!


The NOA also tells you how much you can invest in your TFSA and your RRSP. This helps me plan my investments for the year.




In fact, I’m not disappointed by the amount but rather what I’m going to do with it. I deposited my checks last week and already used all my tax refund… to repay debts! As fast as it was deposited, it was applied to my loans just as fast. It wasn’t incredibly exciting to use my tax refund to pay down debt but I know it’s the right thing to do.


I’ve already paid for my vacation for the full year (including my summer vacation) so I know I will not have more expenses to come in the next 6 months. Reducing my debt is the #1 priority for the rest of the year and it starts with my tax refund.


The second step is to take my next raise to invest more in my TFSA to fund private school for my three children. Then, I should receive a part of my bonus this summer which will also be applied to my debts. By January 2015, I should have paid everything besides my car loan and mortgage, this will help a lot!


What are you going to do with your tax refund?


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by: RICARDO DI VINCI | May 8th, 2014 (6:36 pm)

When you look at the balance after paying down whatever debt you had it should bring a big smile to your face, not a frown.
What am I going to do with my return. Part of my “emergency fund” and a cruise planned fo rlater on. I woul dprobably been able to pay that off with my salary but I like ahving money in the bank to cover it – just in case.
RRSP and TFSA already maxed out with over $4K left over for next year’s (2014) return. Made some contributions after Jan 1st to make sure I get the maximum deductible amount for each year plus a good start to the current year. I have to watch out I do not over contribute so I leave room at the end of the year and top up after Jan 1st. If you really follow your earning you can over contribute by $2K without any penalty. Over that you get nicked by CRA and in our case RQ as well. SO I just don’t take the chance. Plow it in after Jan 1st.
Great ime in January as it is a big dividend pay month as well.

by: RICARDO DI VINCI | May 8th, 2014 (6:43 pm)

As a side note, if you are getting money back from the CRA / RQ then you have over contributed effectually “lending” the goverment non-interest bearing money. WHich they give back to you when you file. So if it is a significant amount and this happens every year you can ask your employer to reduce the amount deducted from your pay. You just have to be smart enough not to spend it all. Invest in div stocks instead.
Also are you aware that if you are SURE that you will be getting a return then you do not have ot file for APR 30th. You can file any time after that. But if you mis-calculated and you owe them money – OUCH!
Just keep in mind that it an interest free loan you are giving the government and it does not benefit you in any way until you get it back.

by: The Financial Blogger | May 9th, 2014 (5:49 am)

Hey Ricardo,

I know, it’s just that there are so many other ways to spend 3K than paying down my debts, hahaha!

Actually, the bulk of this return is due to a lump sump RRSP contribution I made in January but this amount change from one year to another. It is a good advice though to check your tax and how you are structure to not “lend” money to the Gov’t several months!

I only got $150 for my refund so I am doing nothing with it. Good idea to pay off your debt asap. Should be everyones first priority

I know how you feel. I owed state and got some back from Federal this year. I used my refund to pay bills, not a great feeling, but still better than owing more taxes.

I used my tax refund to fund my TFSA contribution for the year.