I really thought I would get a bigger refund!!
I thought I would get more….
Every year, a few clients walk away disappointed. Some feel they should have received a bigger tax refund. Many of these feelings stem from fellow co-workers or family members convincing my clients that because their demographics are similar, they should have received about the same refund (ie. my buddy at work received $1,200, we are both married, we both have 2 kids, and my refund was only $80 – I don’t understand). It also stems from seeing all those H&R Block Commercial’s on TV saying that the average refund is $1800…but H&R Block counts only refunds – not balances due (according to Statistics Canada, the average Canadian received a refund of $468 in 2020).
The “he said” and “they said” comments all stem from average every day people who know absolutely bupkis about income tax preparation somehow convincing people that they should get bigger refunds. Should you listen to them? Absolutely not! Here are just a few examples of how one small difference between identical families dramatically affects the amount of their tax refund.
| Family A John & Jane Smith John makes $30,000 Jane makes $28,000 2 kids (3 and 7) John & Jane each contributed $3,000 to their RRSP plans Refunds: John: $1329 Jane: $1187 | Family B Mary & Bob Roper Mary makes $30,000 Bob makes $28,000 2 kids (3 and 7) Mary and Bob do not contribute to RRSPs Refunds: Mary: $187 Bob: $86 |
| Family C Sue & Joe Snyder Sue makes $20,000 Joe makes $18,000 1 kid (8) Sue & Joe pay their sitter $3,000 “under the table” Refunds: John: $141 Jane: $27 | Family D Joanne & Stan Hogan Joanne makes $20,000 Stan makes $18,000 1 kid (8) Joanne & Stan pay a daycare $3,000 Refunds: Mary: $1168 Bob: $58 |
| Family E Bobby & Jennifer Major Bobby makes $47,000 Jennifer babysits from her home and makes $5,000 “under the table” 3 kids (2,4,6) Refunds: Bobby: $2,255 Jen: $0 | Family F Stan & Claire Rogers Claire makes $47,000 Stan works a small part time and makes $5,000 3 kids (2,4,6) Refunds: Claire: $614 Stan: $154 |
As you can see from the above examples, it takes only a very small variance to determine the refund a person gets.
Family A&B:
RRSP contributions almost always results in a refund (the average formula is $1,000 in RRSP Contributions = $300 refunded)
Family C&D:
Although both families paid the exact same in babysitting, the fact that family D has a receipt and can claim it as a Child Care Expense gives them a much bigger refund.
Family E&F:
Because Jen works “under the table”, her revenue is nil allowing Bobby to claim a non-refundable tax credit of $14,398 for her. Claire can only claim $2,500 for Stan.
A co-worker who is receiving a $1200 refund may not even know WHY he is getting it if his/her tax preparer did not explain it. In reality, the payroll deduction system is set up so that you should neither OWE or be OWED when you have your taxes prepared. One thing is certain, you will not get a large refund unless you have non-refundable tax credits*, or you have expenses & deductions to apply against your income (ie daycare, RRSPs).
Unless your friend or co-worker has intimate knowledge of your finances or you of theirs, and you know without a doubt that your demographics match EXACTLY, it is very difficult to compare tax refunds. It really is like comparing oranges and apples!
Posted in: I DON'T THINK MY TAXES WERE DONE CORRECTLY!
