Is Enough Tax Withheld? Tax Pros Think So

Beth Graddon

As March came to a close, the CRA had received 9.3 million returns, and according to data to March 13, average tax refund amounts had declined slightly from February: coming in at $2,172. Over the year, the size of the tax refund has been steadily increasing.  We asked you to tell us whether CRA should cut back on withholding taxes so that Canadians could keep more in their pockets every two weeks.  The no’s won at 62.96%.  Here were your comments:

For the “Yes” side:

They should never withheld any tax from retirement saving plan include RRIF.   

By Parbatee Soogrim on March 28, 2023

Withholding Tax for RRIF/LIF we find is very excessive, vast majority of clients get quite large refunds.  Very few blue collar retirement plans require 30% tax withholding.

By Dan McKinnon on March 23, 2023

For the “No” side:

The initial returns have significant refunds because those expecting refunds are motivated to get their documents in early.  For many of them, the system already provides them with the opportunity to have less withheld by selecting the appropriate amounts on TD1s but they don’t do it.  If the system were to be changed so that less was withheld overall there would be a significant increase in amounts due on April 30th resulting in requests for quarterly instalments.  For the most part, the system works. Leave it alone.

By Sue Hopcroft on March 22, 2023

If the withholding threshold were dropped so that refunds were smaller that would raise the number of people owing come April 30. My experience is that few clients are prepared to pay at April 30. More tax delinquencies would result. Leave the withholding practices alone.

By Terry on March 16, 2023

Thanx for your support, Ms Mitzi-Lynne.  When people are living paycheque-to-paycheque, and unexpected tax bill in April is the last thing they need.  Where I do payroll, I work with the employees to ensure there are no surprises come tax time.

By Jo Ruelle on March 09, 2023

$2,200+ seems a tad high; however, the CRA’s deduction tables always ensure the CRA collects extra for an employee with a single job. I suspect it’s done to ensure the CRA gets “its cut” should the taxpayer not file and as an incentive for the average taxpayer to file to get the refund. I have had clients who receive large refunds, mainly because of RRSP contributions, and when I suggest applying to reduce tax source deductions they generally decline. As already stated by at least one other responder, the taxpayers use it as a sort of “forced” savings plan. Even when shown why this is such a poor idea from a financial perspective, they want the large refunds. Oh well . . .

By Michael on March 08, 2023

That might be the average, but I’d guess the average person must have had deductions this year, or reasonings behind the refund.  In my experience, the average single person who comes with one T4 and no extra deductions, the refund is not that high.  It would not bode well if we people ended up owing when all they had was a T4.

By Jodi on March 08, 2023

Not for me personally. I confess to using the CRA as a savings account, like Jo Ruelle says, (Hello, Ms. Jo) because when CRA has the money, it can’t dribble out between my fingers like water through the ocean sands. I know I lose some interest on it and Evelyn Jacks on Tax would say I am an idiot for doing it, but I don’t start the year with the total cash I will have at the end of the year, so I don’t lose that much interest, especially not lately. And it’s true. People love their refunds to the extent of planning their lives around getting a refund, even though they don’t take steps to ensure that they get one. As far I am concerned, CRA can leave the withholding alone. Now, wasn’t that a nice little dissertation?

By Mitzi-Lynne Morgan on March 02, 2023

During many years of doing taxes with H&R Block back in the day, I realized that there is a large contingent of taxpayers who depend upon the “RevCan savings plan” to provide that extra cash in the early spring.  Well remember one occasion when a “cash back” cheque was delayed and the taxpayer was desperate; fortunately, the cheque arrived in time.  It’s all very well to say “cut back on withholding”, but doing so would really hurt a lot of unsophisticated taxpayers who do depend on their employer withholding at least enough to enable them not to owe and - if have a few deductions - enable them to get the cheque to pay the car insurance or other obligations.

By Jo Ruelle on March 01, 2023

For better or worse, people do love their refunds! And if they do want less source deductions, they can fill out the TD1 form.
As well, for people who have more than one T4 slip, are unable to purchase RRSPs, donations or any of the myriad of other deductions, they would end up with balances if withholding decreased.

By Tammi on March 01, 2023

Thank you to everyone who participated! This month, we’d appreciate your thoughts on the following: “The prescribed interest rate on overdue taxes is 9% for the second quarter.  Will taxpayers now pay off tax debt sooner?”