Canadians plan to use tax refunds to pay down debt: poll

“It’s good to see that Canadians are committed to paying off their high-interest debt as quickly as possible, but our poll shows that Canadians still aren’t putting enough time and effort into tax planning,” says Jamie Golombek, managing director, tax and estate planning, CIBC. “Contrary to popular belief, getting a tax refund isn’t really a windfall. After all, what you’ve essentially done is loan your hard-earned money to the government, interest-free, for a year or more.”

Using a refund to pay down debt is consistent with previous CIBC polls that found paying down debt has been the top financial priority for Canadians for five years running, with 85% of Canadians taking steps to reduce their personal debt levels. “When deciding whether to pay off low-interest debt or put your extra funds towards savings, however, a bit more analysis may be needed,” says Golombek.

“A tax refund can have a big impact on either side of an individual’s balance sheet, whether the funds are allocated to savings or debt repayment,” says Golombek. “When deciding what to do with your refund, Canadians must review practical considerations, such as current and future anticipated marginal tax rates, rates of return and cost of borrowing before deciding whether it makes sense to save or pay down debt.”

For those receiving a tax refund this year, Golombek provides guidance on how to make the most of any extra money that you have in his report, Mortgages or Margaritas: Is paying down debt putting your retirement at risk?

For the nearly 20% of Canadians expecting a refund but who have no immediate plans for the money, Golombek urges them to quickly assess their needs and create a financial plan.

Key findings of the poll include:

• 58% of Canadians expect a tax refund this year
• 21% plan to reduce their high-interest debt by making a credit card or loan payment;
• 19% are either putting it aside or haven’t decided what to do with it;
• 18% intend to use their refund to pay for day-to-day expenses, such as bills or groceries; and
• only 13% plan to save or invest the funds.

Poll results were compiled from an online survey conducted for CIBC among 1,503 randomly selected Canadian adults who are Angus Reid Forum panelists from April 1 to 2.