Canadian Tax Refunds Explained: How Much You’ll Get and How Fast

What Your Refund Really Means

Your refund is the difference between how much you paid in tax throughout the year and the amount that you actually needed to pay upon assessing your taxes for the year. If you paid more than you were supposed to, your refund will be the extra that goes back to you – it’s just a matter of getting your money back after the CRA holds onto it for months.

A majority of refunds fall under one of these four categories:

• Over-withholding due to payroll. Your employer deducts your tax payment using your TD1 slip; however, your withholding cannot account for certain amounts, such as your RRSP deduction or childcare and tuition payments and medical costs – thus making you overpay your taxes.
• Refundable Credits. Certain credits give you back money even when you have not over-paid.
• Over-paying your tax instalments
• Changed situations. Being unemployed/unpaid or moving results in too much withheld tax as well.

One surprising thing about refunds is that filing is actually the trigger for issuing a refund by the CRA. The CRA does not send any refunds back on their own so those earning less and not bothering to file may be missing out.

Tip: There is a difference between the refund and benefits. If you file your returns late you might even affect receiving your benefits even if the refund is zero.

What Determines the Size of Your Refund?

There are no useful national averages here. Your refund will depend on the amount of tax withheld and the deductions and credits you will be claiming. Two people earning the same salary can end up being thousands of dollars apart.

For most workers, some key considerations are:

RRSP Contributions- The contributions reduce taxes based on your marginal rate and hence benefit a high-earner more than others.

Working for multiple employers- Each paycheck deducts tax based on your sole earnings, resulting in underpayment of taxes but overpayment of EI and CPP premiums.

Amount of Tuition, Childcare and Support Payments- This is claimed by a certain spouse.

Medical Expenses– Choose the 12-month period that works best for you.

Work-related expenses- The expenses require your employer’s signed confirmation, an option that is often overlooked by people.

Tax carry-forwards- Unused tuition amounts, losses, and RRSP amounts from previous years accumulate in your CRA account.

Length of Time Required to Receive Your Refund

These times apply to returns not requiring any investigation. The time taken will be the same as the review process takes. In addition, the two weeks will begin once the return is accepted by the CRA; so, returns submitted in the last week of April are among the largest batches of the season.

Important Dates

If you owe the Canada Revenue Agency a refund, there will be no penalty for late filing. However, delays in your benefit payments will result from late filing even if you are owed money.

Direct Deposit vs Cheque

Direct deposit is the largest time accelerator within your control. The cheque must be printed, mailed and deposited, which takes days or even weeks. Registration can be done through CRA My Account or your bank.

Watch out for a stale account. In case your bank account on record is closed, the direct deposit will fail and a cheque will be mailed to your last known address, and thus changing addresses or bank accounts in the same year is a common reason for “missing” refunds. Make sure that your address and marital status are updated as well, as the latter impacts multiple credits.

Why Yours Is Taking Longer

Some reasons why you may be waiting for long:

• • Return is being reviewed. Act promptly and provide all the documents.
  • Slip discrepancy. The CRA keeps information on slips from your employers and payers, and a discrepancy causes a delay.
  • Unfiled prior years. If you haven’t filed your previous year return, this will delay this current one.
  • First-time filing or gap return review.
  • A refund applied against a debt 
  • Filing by mail during peak season.

Before assuming anything, please check CRA My Account. This normally appears there before you get it in the mail.

When the CRA Withholds Your Refund

Your refund is not sacred and it is automatically deducted first from any amount owing to the CRA, such as outstanding amounts and accrued interest, and it can even be transferred to pay off other government liabilities. This is reflected on your Notice of Assessment as being applied rather than issued. Smaller refunds can be deferred onto your account.

If you know you have arrears, don’t assume that your refund will go into your pocket.

Want nothing holding you back? Betataxes reviews your carry-forwards, past slips and overlooked credits before filing, and gives you your number before we file. [Book a free consultation]

Is It Really a Good Thing to Get a Large Refund?

Not really, since it means you have been giving the government an interest-free loan for up to sixteen months. If you have credit card debt while getting a large refund every year, you are paying interest on something you already own.

While some refunds are inevitable due to a one-time RRSP deposit or a high-medical year, since withholding cannot anticipate it, anything that happens regularly and predictably can be adjusted at its source.

Real savings: If you make a $500 monthly deposit into your RRSP, you can usually arrange to reduce taxes from your paycheck instead of waiting for a single refund. The amount is the same, but you get it a year earlier.

Collecting the Funds During the Year

Two types determine how much tax will be withheld from your wages:

TD1: Lists your usual credits. If there has been a change in your life (such as having a dependent, a low-income spouse, or tuition), submit your updated TD1 to your employer. This document is only valid for future withholding.

Form T1213: The Request to Reduce Federal Tax Deductions at Source. Recurring withholdings, such as RRSP deductions, daycare and support payments, are listed on this form. It takes about four to six weeks to process. It is only valid for a specific period and needs to be renewed.

For the self-employed, the tool is similar: calculate the installments based on this year’s realistic projections, not last year’s high income.

Claiming Returns from the Prior Year

The return filing period doesn’t affect unclaimed amounts. You may file your refund and there will be no late filing penalty because no tax was paid. The adjustment of already filed return is usually claimed within ten years counting calendar year. In either case you’ll have to submit documentation. Make sure that the claim should be made for the earlier year or a later one considering that there are interlinks between credits and income each year.

Errors That Make Your Refund Smaller or Later

•  Submitting before getting all your slips and requiring reassessment
• Forgetting carry-forwards on your CRA account
• Claiming a credit on the wrong spouse’s return
• Neglecting to respond to an inquiry letter by the deadline
• Filing on paper because you always have done so
• Delegating your self-employment accounting to April, where expenses will be forgotten
• Not sorting out cross-border treaty issues before filing

How Beta Taxes Can Help

For faster refunds: file online, sign up for direct deposit and wait for all slips to arrive. For larger refunds, you do your due diligence prior to filing: review any carry-overs, determine who among your spouses will claim their share and verify no items have been overlooked for previous years. Also, if you get large refunds annually, it should tell you something about your withholding.

Get your tax return prepared to avoid any mistakes: Claim your free Consultantion