'Tip of the iceberg' as Canadians face tax-related debts: Study
Many Canadians do not have a year-round strategy for their taxes, leaving them with suboptimal returns, according to a new study.
Findings from IG Wealth Management’s annual tax study, released Wednesday, showed 22 per cent of respondents indicated that they make tax planning a priority over the course of the year. Thirty-six per cent of those surveyed view a year-round tax strategy as unimportant.
“Everyone who pays taxes can benefit from year-round tax planning as part of their larger financial plan, especially these days given the cost-of-living crisis and a higher interest rate environment,” Damon Murchison, the president and chief executive officer at IG Wealth Management, said in a news release.
Additionally, the study found that one-in-10 Canadians, or 10 per cent of those surveyed, felt assured they receive all the tax credits available to them.
“Making tax planning a regular activity can help reduce your overall tax bill and help you take advantage of all available tax deductions and credits, allowing you to keep more of your income in your own pocket,” Murchison said.
Other findings included the fact that 85 per cent of those surveyed believed a tax refund is beneficial, with 60 per cent saying they work toward increasing their return each year.
“Contrary to popular belief, having a larger tax refund is not necessarily a good thing,” Murchison said.
“A tax refund means too much tax was collected from you over the course of the year. Although it might feel nice to receive that money after you’ve filed, you have lost out on interest, investment, and spending opportunities throughout the year,” he said.
According to Canada Revenue Agency (CRA), an individual can get a tax refund if they paid more in taxes during the course of the year than they owe on their income. For example, CRA said this could happen if an employer deducts too much from an employee’s pay.
A majority of Canadians also perceive their tax refund similarly to a bonus, with 57 per cent indicating they use those funds to “treat themselves or their family,” the release said. Around 44 per cent of respondents stated they incorporate their tax return into an investing strategy.
Nearly half of Canadians, or 42 per cent of respondents, do not consider the tax implications on a major purchase like a home or car, the study found.
“Scrambling to make sense of your assets at tax time is inefficient for you and your money,” said Murchison.
According to the Canadian Imperial Bank of Commerce, some of the tax implications for purchasing a home include a land transfer tax, GST or HST, as well as property taxes, utilities and condo fees.
The study was conducted through a partnership with Pollara Strategic Insights between Feb. 15, 2023, and Feb. 21, 2023.
Results were taken from an online sample of 1,535 Canadians over the age of 18.
The release said responses from the study were weighted by region and gender in order to reflect the population.