Getting a refund at the end of year is considered as a gift from Canada Revenue Agency. Taxpayers need to understand that this was your money that government kept and gave it back to you in the form of tax refund.
So let us take an example that you the taxpayer gets back $1,000 each year for 30 years. This means you the taxpayer gave $1,000 each year in the hands of government for 30 years. Let us assume that you had this extra $1,000 in your hands instead of giving it to the government each year and let us also assume that you were investing this $1,000 each year in a tax sheltered program that paid you 8% return each year and interest was compounded each year.
Take a look at the following chart for the net result of this investment in 30 years.
| Year | Invested / year | Amount Compounded | Total Invested | Interest Earned | Value after the year |
| 1 | 1,000.00 | 1,000.00 | 80.00 | 1,080.00 | |
| 2 | 1,000.00 | 1,080.00 | 2,080.00 | 166.40 | 2,246.40 |
| 3 | 1,000.00 | 2,246.40 | 3,246.40 | 259.71 | 3,506.11 |
| 4 | 1,000.00 | 3,506.11 | 4,506.11 | 360.49 | 4,866.60 |
| 5 | 1,000.00 | 4,866.60 | 5,866.60 | 469.33 | 6,335.93 |
| 6 | 1,000.00 | 6,335.93 | 7,335.93 | 586.87 | 7,922.80 |
| 7 | 1,000.00 | 7,922.80 | 8,922.80 | 713.82 | 9,636.63 |
| 8 | 1,000.00 | 9,636.63 | 10,636.63 | 850.93 | 11,487.56 |
| 9 | 1,000.00 | 11,487.56 | 12,487.56 | 999.00 | 13,486.56 |
| 10 | 1,000.00 | 13,486.56 | 14,486.56 | 1,158.92 | 15,645.49 |
| 11 | 1,000.00 | 15,645.49 | 16,645.49 | 1,331.64 | 17,977.13 |
| 12 | 1,000.00 | 17,977.13 | 18,977.13 | 1,518.17 | 20,495.30 |
| 13 | 1,000.00 | 20,495.30 | 21,495.30 | 1,719.62 | 23,214.92 |
| 14 | 1,000.00 | 23,214.92 | 24,214.92 | 1,937.19 | 26,152.11 |
| 15 | 1,000.00 | 26,152.11 | 27,152.11 | 2,172.17 | 29,324.28 |
| 16 | 1,000.00 | 29,324.28 | 30,324.28 | 2,425.94 | 32,750.23 |
| 17 | 1,000.00 | 32,750.23 | 33,750.23 | 2,700.02 | 36,450.24 |
| 18 | 1,000.00 | 36,450.24 | 37,450.24 | 2,996.02 | 40,446.26 |
| 19 | 1,000.00 | 40,446.26 | 41,446.26 | 3,315.70 | 44,761.96 |
| 20 | 1,000.00 | 44,761.96 | 45,761.96 | 3,660.96 | 49,422.92 |
| 21 | 1,000.00 | 49,422.92 | 50,422.92 | 4,033.83 | 54,456.76 |
| 22 | 1,000.00 | 54,456.76 | 55,456.76 | 4,436.54 | 59,893.30 |
| 23 | 1,000.00 | 59,893.30 | 60,893.30 | 4,871.46 | 65,764.76 |
| 24 | 1,000.00 | 65,764.76 | 66,764.76 | 5,341.18 | 72,105.94 |
| 25 | 1,000.00 | 72,105.94 | 73,105.94 | 5,848.48 | 78,954.42 |
| 26 | 1,000.00 | 78,954.42 | 79,954.42 | 6,396.35 | 86,350.77 |
| 27 | 1,000.00 | 86,350.77 | 87,350.77 | 6,988.06 | 94,338.83 |
| 28 | 1,000.00 | 94,338.83 | 95,338.83 | 7,627.11 | 102,965.94 |
| 29 | 1,000.00 | 102,965.94 | 103,965.94 | 8,317.27 | 112,283.21 |
| 30 | 1,000.00 | 112,283.21 | 113,283.21 | 9,062.66 | 122,345.87 |
As you notice this compounding of interest and regular investment on yearly basis will give you $122,345.87 at the end of 30 years. So do you really want Canada Revenue Agency to use your money and depriving yourself of this opportunity of potential growth?
What can you do about it?? You can go back to your employer to check your form TD1 that there are no over deductions made from your gross earnings.
If you are consistently making RRSP contributions and charitable donations through your employer, you can ask Canada Revenue Agency to allow you to reduce your payroll taxes.
If you manage to reduce your payroll deductions be very disciplined in investing the extra funds in a tax sheltered investment program regularly.