Hockey & Lessons in Income Tax.

Albert Einstein once said 'the hardest thing to understand in the world is the income tax.' I would agree with that. According to Wikipedia, income tax is a tax imposed on individuals or entities that varies with respective income or profits. It is calculated as the product of a tax rate times taxable income. Tax rates can vary by type or characteristic of the taxpayer.

Since November is Financial Literacy Month, one of the books that I have been reviewing is ‘Wealthing like Rabbits’ by Robert R. Brown. One chapter is called “Lessons in savings from the Toronto Maple Leafs”. Now hope springs eternal for every Leaf fan (and maybe the 2018/2019 season will be different), but I can’t help but remember how many seasons started off so well, only to get undermined in the middle of the season or down the stretch.

This is an analogy towards TAX. I have often heard investors state that they cannot make RRSP contributions because they are paying too much in tax up front. Then they claim with some giddiness, that they are getting a payment from the government in the form of a tax refund, and so they don't need to make an RRSP contribution.

Tax refunds are a terrible blight. You receive a tax refund WHEN you have over-paid in tax throughout the previous year. Yes, a tax refund can be affected by an RRSP contribution or by charitable donations, but often, even those who don’t make RRSP contributions or charitable donations may be receiving a tax refund. 

A tax refund is NOT a good thing. The Government of Canada is NOT giving you money. They are giving you BACK your money! The government borrowed money from you interest-free through payroll deductions. You have over-paid your tax, and the government “borrows” it from you, and you don’t even receive simple interest! They don’t even send you a thank-you note! Aren’t you nice?