It’s still tax season – the time of year when most Canadians wait as long as possible to file their income tax return, but once they do so, they hardly wait to get their tax refunds. So, how long to get tax refund in Canada?
Would you be happy if you paid too much money for a pair of shoes, found the calculation error, and convinced the seller to give you a refund? Or will you be upset that the seller put the wrong price sticker on the item and took too much money from you in the first place? Getting excited about how long to get tax refund in Canada is pretty much the same thing.
Contrary to popular belief, tax refunds aren’t positive. Though it certainly feels good to get a lump sum cash deposit in your account like you just won a lottery or something, do not let that hit of dopamine fool you. Tax refunds are a result of overpayments to the federal government. The Canadian Revenue Authority collected excess tax amounts from you and now it’s refunding the excess cash collected. A bigger tax refund means you lost investment and spending opportunities throughout the fiscal year.
But it’s okay. The tax professionals at PersonalBanker can help you perform a 10 year tax review and maximize your tax refund amount.
How long to get tax refund in Canada?
The Canada Revenue Authority typically sends a tax refund within 2 weeks (14 days) if you file income tax return online or eight weeks if you prefer to file paper tax returns. For people outside the country, it may take up to 16 weeks to get a tax refund. If your income tax return information is flagged for review, it might take longer than usual to get your tax refund.
It is recommended to sign up for a direct deposit account with your bank to get your tax refund amount faster.
So, why is your tax refund taking so long?
Before you get excited about how long to get tax refund in Canada, first find out if you’re eligible for tax refund in the first place. You may not get a refund if the amount is less than $2, owe child support payments, or owe the federal government money. If none of these issues apply to you, you may want to contact the CRA after eight weeks.
How tax refund works
In Canada, tax refund works differently for self-employed people and employees.
How tax refund works for employees
In Canada, employers collect taxes on behalf of the federal government at the source (from the employee’s paycheck before it gets to the employee’s bank account). Employed Canadians file income tax returns detailing their income tax credit and any relevant deduction before April 30th of the following year.
This is an effective way to figure out the actual tax amount they owed. In case they pay more amount than they owe, the federal government is expected to issue a refund. If they underpaid, probably because they have other sources of income, they are expected to pay up by April 30th of the following year.
Tax refund for self-employed people
In contrast, self-employed Canadians are responsible for their cash flow throughout the fiscal year. They should estimate the average tax rate at the start of the year and transfer that percentage from every paid invoice to a separate bank account (accumulate cash).
Towards the end of the fiscal year, self-employed Canadians should add up their total income, subtract common deductions, expense, determine their average tax rate, and make the necessary tax credit subtraction. Since no taxes have been collected yet, self-employed people must send the total amount to the Canadian Revenue Authority. This is why you need to do accurate bookkeeping and ensure you don’t spend the accumulated cash in your separate bank account.
If you pay taxes annually like this, there is a good chance you will not make an overpayment, which is why you will not get a refund. It’s also possible for self-employed individuals to pay taxes throughout the fiscal year in quarterly tax installments. No matter how you choose to pay your taxes, consult with a tax professional to ensure, the numbers are correct. Remember, you will not be deducting employment insurance (EI) because you engage in a sole proprietorship or other forms of self-employment.
Low tax refund
If you’re employed, it is possible to get your boss or employer to decrease or even increase the amount of tax collected from your paycheck by filling out Form TD1. A low tax refund means that you’ll be paying less amount of tax throughout the year.
This can benefit you in two different ways. First, you will have more cash flow to live on throughout the year. Secondly, you can invest the amount of money you could have paid in excess of your tax or have saved in a high-interest savings account. A low tax refund amount (due to the low amount of tax paid) could ensure better cash flow. The experienced tax professionals at PersonalBanker can help you ensure you optimize your tax refunds by first help you reclaim the highest possible refund amount and ensure that you pay the lowest possible amount of tax.
Suppose you need more money every month probably because you have debts to pay, have a child in daycare, or high rent. You already know you’re going to contribute & deduct a large amount of cash to your RRSP. That means you will end up with less taxes payable, a huger refund amount, and low income. Unfortunately, CRA doesn’t know this, and it collects taxes based on your gross income alone without considering tax credit and deduction.
If you could minimize the total cash taken off your paycheque, you could have extra hundreds of dollars every month to pay your expenses.
Suppose you’re a high-income earner and pay more than $100,000 in taxes every year; you already know that you can squirrel away that amount of money in high-interest savings account monthly until April 30th of the following year. That means you would earn at least 2.4 percent interest on that cash. However, this strategy takes expenditure discipline – the Crown’s money. Consult with the tax and financial advisors at PersonalBanker to learn more ways of minimizing your tax obligations and maximizing your cash flow.
Make your tax refund bigger.
Some Canadians prefer to have a huge tax refund amount. This tax strategy is akin to using the Canada Tax Revenue as a piggy bank. It is easy to intentionally increase your tax refund. Just fill out the Form TD1 to get your boss or employer to increase the amount of money collected. An experienced tax advisor from PersonalBanker can help you perform a 10 year tax review and optimize the amount of refund you’re entitled to.