Will Tough Times Increase Tax Discounting?

Firms that do tax discounting transactions tend to pop up at year end, and they will prepare the return and electronically file it, but provide "instant refunds" at a cost of 15% of the first $300 and 5% of the rest of the refund. That means if your refund is $300, you'll pay $45 to have the return prepared and email and get $255 back immediately.

If your refund is more like $1500óthe average refund in Canadaóyou'll pay $105 for this: $45 on the first $300 and $60 on the next $1200. This will put $1395 in your pocket instantly. Is that worth it?

Consider the annualized cost of advancing yourself money this way. . .and then some alternatives. Perhaps if you have access to a line of credit or can earn extra income with a second job, you'll preserve more of that tax refund. Or, if you have errors or omissions on prior filed returns, you may be able to recover missed refunds or benefits that will cover costs in the short term.

Your tax advisor can help. The form and sample cost calculations can be found at the following link: http://www.cra-arc.gc.ca/E/pbg/tf/rc71/rc71-10b.pdf

Additional educational resources: Introduction to Personal Tax Course and Essential Tax Facts.