Intaxication is a slick little phrase invented by Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce. It refers to the euphoria people feel when they find out they’re getting a tax refund.
Here’s what’s wrong with intaxication – you’re being paid with your own money when you get a tax refund. The government basically overtaxed you and is now settling up by refunding money you could have put to work all through the past year.
Mr. Golombek says one easy step to avoid tax refunds is to have the taxes on every paycheque reduced. To do that, fill out the Canada Revenue Agency T1213 form, titled “Request to Reduce Tax Deductions at Source.” The form allows you to specify deductions or credits (RRSP contributions are an example) that would result in a refund for the year if your taxes weren’t reduced.
Now for a quick contrarian take. Tax refunds are OK if you’re struggling to save anything at all and you use them intelligently. For example, you take your entire refund and pay it down against debt on your credit card or line of credit. If people who have trouble saving reduce their taxes and end up with more net pay every two weeks, they could easily spend it and not be materially better off. A tax refund at least offers a lump sum of money that can be used productively to pay down debt or invest.
Addendum: Mr. Golombek has produced this handy guide to taxation of investment income. Tax rates on dividends and capital gains are covered, as are real estate investments and tax-deductible investment expenses.
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Rob’s personal finance reading list…
Suits me fine
The Wall Street Journal reports on a great development in personal finance – the decline of the men’s suit. Suits are expensive to buy and maintain through periodic dry cleaning. Long live the more casual office.
Preconstruction condo traps
If you’re looking at floor plans for preconstruction condos, check out this list of pitfalls to avoid. Examples: Watch for balconies being included in square-footage, as well as proximity to the elevators and excessive space wasted on corridors.
Collection agencies getting more aggressive
An insolvency experts sees bank and other financial companies taking a tougher stance in going after clients who don’t pay their debts on time.
Do you own your phone, or does it own you?
I’m starting to think that improving financial wellness will require people to become more savvy about technology and its impact on their emotions and their spending. Here’s a video about how social media and various apps and websites are designed to be habit-forming. In an article about financial stress, I looked at how social media feeds anxiety about our social status and may prompt us to spend money we can’t afford.
Today’s financial tool
Will Power: The Globe and Mail guide to estate-planning. How to ensure your estate plan benefits your heirs, not the tax man (for Globe Unlimited subscribers)
Q: I periodically receive notices from my credit card provider offering a credit-limit increase. I usually just ignore them. But I was wondering if there is any advantage to agreeing to the increase. Does it improve your credit rating to have access to more debt but not use it?
A: If you don’t increase your spending on your card, then a higher limit would reduce your credit utilization (percentage of available credit you’re using). This could help increase your credit score. The risk is that a higher limit enables you to spend more than you can handle.
In case you missed these Globe and Mail personal finance-related stories
- Five ways to recession-proof your portfolio
- Ten rules to know about locked-in retirement accounts
- Why shorting the Canadian banks on housing makes no sense (for Globe Unlimited subscribers)
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