Most Canadians plan to use tax refunds to pay down debt or save: CIBC Poll

CIBC's Jamie Golombek offers tips to get that refund every payday

TORONTO, May 9 /CNW/ - Nearly three quarters of Canadians expecting a tax refund this year plan to use it to pay down debts or build up their savings finds a new CIBC Harris/Decima poll. The poll found that only eight per cent of Canadians plan to spend their refund.

Key findings of the poll include:

    -   55 per cent of Canadians have received or are expecting to receive a
    -   47 per cent expect less than a $1,000 refund with 5 per cent
        expecting more than $5,000
    -   42 per cent plan to use their refund to pay down debt and 30 per cent
        plan to save or invest it
    -   74 per cent know they may be overpaying taxes on their regular
        paycheques if they are getting a refund this time of year

"The fact that the majority of Canadians plan to pay down debts or shore up their bank accounts with their tax refund is a clear sign that Canadians are indeed focused on getting their financial house in order," says Jamie Golombek, CIBC's head of tax and estate planning.

"However, getting a refund each year is poor tax and financial planning as it's a sign that you are overpaying on your taxes throughout the year. At first glance, it might seem like good news but the reality is you are only getting your own hard-earned money back. Canadians would be better off receiving their tax "refund" with every paycheque so they could pay down debt and invest that money throughout the year."

Mr. Golombek calls Canadians reaction to a refund, "Intaxication", which he describes as the "short-term euphoria associated with a tax refund that quickly fades when you realize you are getting your own money back, interest-free, over a year later."

He believes Canadians in the 35-44 age group to be the most likely to suffer from intaxication. The CIBC poll found that respondents in the 35-44 age group were the most likely to expect a refund (68 per cent). This group also expected some of the largest refunds with 26 per cent expecting between $2,000 and $5,000. Respondents aged 35-44 were among the most likely to use the refund to pay down debts (52 per cent) and the least likely to spend it (4 per cent).

He recommends Canadians look into reducing their taxes at source, typically from their employment income, first by making sure that the credits your employer uses to calculate your payroll withholding is up to date (the "TD1 Form") and the second is to apply annually for a reduction of tax source (the "T1213 Form"). He notes that while the poll showed that 74 per cent of respondents realize that a refund is a sign of overpaying taxes throughout the year, it's clear from the refunds being issued that few actually do anything about it.

"Clearly, it would be better to avoid getting a tax refund by having your tax reduced at source by your employer and having the use of the funds throughout the year, which can be used to increase your monthly mortgage payments or put towards an RESP or TFSA contribution," adds Mr. Golombek.

"The "TD1 Personal Tax Credit Return" sets out the personal tax credits you intend to claim when filing your tax return, and helps determine how much tax is deducted each pay period. If your entitlement to personal tax credits such as the spouse or partner amount, the child amount or tuition has changed from the time you were hired, you should re-submit the form so that taxes withheld at source can be adjusted for tax credits beyond the basic personal exemption."

Employment income also typically does not take into account various deductions, such as personal RRSP contributions or deductible childcare expenses. By completing the T1213, "Request to Reduce Tax Deductions at Source" form, you simply indicate your anticipated deductions or credits that, if not taken into account, would increase your tax deduction on each paycheque - money you will then need to wait until you file your annual tax return to get back as a refund. Once approved by the Canada Revenue Agency, you will receive a letter of authorization, which must be given to your employer, allowing them to reduce the tax deducted at source.

In his new report called, Intaxication: Why getting a tax refund may be a sign of poor financial planning, Mr. Golombek illustrates the benefits of reducing your taxes at source. He cites the case of an individual who will earn $69,000 in 2011 and plans to contribute $9,000 to his or her RRSP. Based on 2011 Ontario tax rates, this person would be eligible for a reduced tax withholding of about $240 per month. By completing a T1213 form to reduce taxes at source, this taxpayer would have an additional $240 per month to put into a regular investment program, such as a Tax-Free Savings Account.

The individual won't miss the money on a monthly basis because the net pay remains the same. The only difference is that instead of the money sitting with the government for a year, it is invested tax-free. "Over a working career of 30 years, at a five per cent annual compounded growth rate in a balanced portfolio, the $240 could grow to nearly $200,000 tax-free," notes Mr. Golombek.

You can review the full report by Mr. Golombek by visiting Tips to Reduce your Taxes.

Each week, Harris/Decima interviews just over 1000 Canadians through teleVox, the company's national telephone omnibus survey. These data were gathered between April 20 and April 27, 2011. A sample of this size has a margin of error of 3.1%, 19 times out of 20.

CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at


For further information: Kevin Dove, Senior Director, Communications and Public Affairs, 416-980-8835 or


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