Planning for fun starts with your refund

Summer rocks in Manitoba: 100,000 glistening, fresh-water lakes; big music festivals under big, blue skies; and a hot sun that shines until well past nine o’clock at night. It’s a time to count your blessings — and your savings. After all, way too soon your winter escape will become a priority. But if you plan carefully, your tax refund can be the impetus for future fun.

Here are some summer tax tips to consider:

Summer Tip #1: Contribute your tax refund to your TFSA. A Tax-Free Savings Account is a great place to park your money because the income you earn in your TFSA is tax-free. When the time comes, you simply withdraw your accumulated savings; you pay no tax penalty, as you would with an RRSP. So, when choosing investments for your TFSA, think growth. Remember: the more you earn, the bigger your TFSA withdrawal and, because withdrawals open a like amount of contribution room, the more “re-contribution” room you will have in your TFSA. Now, go ahead, can scan the sales for your winter vacation.

Summer Tip #2: Exercise outside. Now is a good time to change personal and financial habits. Give up your gym membership for the summer (especially if you never go) and exercise outdoors instead. Come winter, you can re-establish your gym membership, but in the meantime, drop those savings into your TFSA. Rethinking the need to spend and developing frugal habits allows you to leverage your savings in tax-efficient investments. That will put you on the fast track to building real wealth.

Summer Tip #3: Preserve the sunshine and rethink Christmas. Lots of families veer off the financial track because they overspend at Christmas. This year, give the gift of summer memories. Take lots of photos on your vacation; then, make them tangible. In an electronic world, an emailed summer photo brings smiles at Christmas, especially when it captures fun family memories. Now, cross Christmas gift-giving off your list, calculate your savings over last year’s spend and put the difference into your TFSA or RRSP.

Summer Tip #4: Bottle the “yum.” You may need to ask the elders how to do it, but this year, pick, chop, bottle and freeze summer’s fabulous bounty. Image pulling plump, sweet blueberries out of the freezer in winter! You can also wrap up your home-made jams and chutneys for sharing. Then, cross birthday presents off your list, calculate the savings and drop the cash into your TFSA or RRSP. You get the picture!

Summer Tip #5: Reduce your tax withholdings. Summer savings can help you increase your RRSP contribution. If you are in line for a larger tax deduction in 2012, ask your employer to reduce your withholding taxes (Knowledge Bureau Report, July 4). Your take-home pay will increase, allowing you to reduce consumer debt and stay on track to meet investment goals. It’s a great way to leverage both time and money.

It’s Your Money. Your Life. Do something different this year: give yourself the gift of summer fun, yum and financial freedom. By preserving your bounty in a variety of old-fashioned ways, including tax-savvy savings, you will extend summer’s joy and unlock your potential to break up those long winter months.

Evelyn Jacks is president of Knowledge Bureau, a virtual campus that makes financial education easy and convenient all summer long. Visit for books and courses.

Average tax refund suggests Canadians are overpaying taxes

Why do Canadians willingly prepay more income taxes than required, at the expense of investing and benefiting from the time value of money? If you believe in the power of compounding, you’ll raise an eyebrow at the size of the average income tax refund in Canada this year: slightly more than $1,600, or about $130 a month. That number has risen dramatically over the past several years. In 2006, just six years ago, the average tax refund was $1,240, or 27% less.

With the debt-to-disposable income ratio at a record high of debt is 152% of household income and Canadians saving only 4% of their disposable income, they could certainly use that money in more financially productive ways — for example, to pay down debt and save for retirement. Reducing the amount of income taxes withheld from paycheques would create savings room and this can make a big difference in wealth accumulation and preservation.

Think of what you could do with the extra money. You could maximize contributions to Tax-Free Savings Accounts (TFSAs) and RRSPs, for example. According to Statistics Canada, only 26% of 24.5 million eligible taxpayers — about six million Canadians — contributed to an RRSP in 2010 (Knowledge Bureau Report, Feb. 1) and contributed slightly less than $3,000 (the median contribution was $2,790). In fact, some 21 million taxfilers had unused contribution room.

As for TFSA, by June 2011 the average account held only $6,354 out of $15,000 in available room, according to Investor Economics. (Today, available room has gone up another $5,000 to an accumulative $20,000). A survey commissioned by Bank of Montreal in November 2011 found only 44% of Canadians had TFSAs and those investors left tax-free compounding room on the table, investing on average only $3,700 a year. If they put the average tax refund to work, they could have contributed the $5,000 maximum.

In today’s volatile markets, when investors are eeking out small returns, it’s important to maximize every available new dollar of income and shelter it from taxes. Reducing your income tax prepayments will put more money into your hands with every pay period and allow you to leverage your investment returns tax-efficiently.

Indeed, tax-efficient investing begins when you take control of the first dollar you earn. So, take a good look at the amount of taxes you are paying at source. Start the process by taking stock of the various deductions and credits to which you’ll be entitled in 2012 — a tax pro can help — and then ask your employer to reduce your withholding taxes. Two forms will help: the TD1 Tax Credit Return and the T1213 Request for Reduction of Tax at Source.

That way you’ll get back your refund with every pay period — instead of waiting until the spring of next year.

It’s Your Money. Your Life. Make the time value of money work for you. Remember, indebted governments expect you to be more self-reliant in the future; you’ll be better able to do that if you reduce withholding taxes and invest the difference.

Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax and wealth planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.