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Unlike last year, tax payers aren’t looking to use their tax returns to splurge on a shopping trip, or on a home renovation project (despite the Harper government’s 2009 tax break for home repairs).
Instead paying down their debt is by far the number one priority.
Forty-three per cent of Canadians plan to use their tax refunds to pay off mortgages, credit card debts, and student loans, according to a study released this week by Montreal-based Dr. Tax Software Inc., makers of UFile personal tax software.
The second and third most popular uses were investing in retirement (9 per cent) or making house repairs (8 per cent).
The report also found 28 per cent of Canadians do not have a strategy in place for dealing with their personal finances.
Twenty-six per cent fear the economic recession will negatively affect their tax returns — even though those are based on last year’s income.
In a similar 2008 Angus Reid Strategies survey – sponsored by Intuit Canada, makers of QuickTax – debt headed the list of items Canadians wanted to eliminate, with stress and excessive weight following close behind.
The study, which polled 1,045 people across Canada, revealed 26 per cent would eliminate credit card debt from their everyday life, if they had the chance, followed by mortgage debt at 22 per cent and winter weight gain at 15 per cent.
While Canadians clearly view tax refunds as a great opportunity to reduce debt, many lack an effective strategy to accomplish this, said Malcolm Campbell, vice-president and general manager of Dr. Tax.
Here’s where personal tax software products come in handy, he said.
It’s a view shared by Evelyn Jacks, Canadian tax author and president of Winnipeg-based The Knowledge Bureau, a post-secondary educational institute, catering to practicing professionals in tax and financial services.
“Canadians facing a credit crunch are wise to look to their tax refund for relief,” she said. “In fact most people leave money on the table by overpaying their taxes year after year.”
UFile software is designed to help users optimize their tax refunds,
according to, Joanne Birch, vice-president of marketing at Dr. Tax.
UFile’s “MaxBack refund analyzer” uses a professional tax engine to help customers pay the least tax possible, said Birch.
Likewise, Intuit’s QuickTax provides tips for tax payers trying to optimize their return and receive the highest refunds.
The company says online or downloadable versions of QuickTax identify every available deduction, based on the latest tax rules and regulations.
The software asks step-by-step, personalized questions to help users identify deductions they can actually avail of, said Cameron Moore, project manager lead at Intuit Canada, the producers of QuickTax.
He contrasted this with pencil and paper preparation, where you need to seek out specific deductions. “They’re there but you need to know about them, and take the time to research and find them.”
The deduction maximizer tool, he said, identifies every possible deduction, many unknown to taxpayers.
The toolkit includes an alphabetical list of deductions, such as adoption expenses, cosmetic surgery, electrolysis, laser eye surgery, gluten-free products, water filters, interest paid on student loans, tutoring services, home renovations or baby sitting.
Filing your taxes as a family is one of the best ways to take advantage of tax savings for dependents and split deductions between spouses, based on income and other tax credits.
The Canadian government provides tax credits for medical expenses, university and college tuition, boarding school, summer camps or costs having to hire a caregiver.
According to QuickTax tips online, recent graduates and those paying off student loans are eligible to claim interest paid on these loans – as a deduction.
This interest on student loans can be carried over for up to five years.
The same is true for charitable donations.
Moore said Intuit Canada’s tax analyst has estimated that the rate at which one is able to claim their charitable donations nearly doubles for amounts over $200.
“If you are short, send a few more dollars to your favourite charity. Alternately, you can carry forward charitable donations for up to five years and claim them in a year that will be more beneficial to you.”
Pension-splitting is the latest way Canadians can save on their taxes, he said. The law on pension-splitting changed in 2007, allowing common law or married couples to split up to 50 per cent of their pension income.
Most tax software products will calculate the optimal pension-splitting strategy for you once you input all of your expenditures. QuickTax’s pension splitting optimizer allows users to try different splitting scenarios to see what the alternatives are for them.
The same tool can also be used for RRSP sharing.
In the case of UFile, the software will do up to 250 calculations of your tax return to determine the best pension-splitting scenario, said Dr. Tax’s Birch. “This isn’t something anyone would ever do by hand, and it offers a real benefit.”
She said customers will find bigger savings by eliminating common errors associated with calculations of spousal and new employment amounts, which are all done for you by the software.
Not only does tax software find out who should make a claim on behalf of a couple legally, but also who would receive the larger sum as a result, Birch said.