.

 

Tax discounting, as it's called, has become a major revenue generator at tax preparation firms in Canada.

Fees for instant refunds are set by the Federal Government of Canada at 15% for the first $300 of your refund and then 5% on the rest.

That means that if your tax refund is $1,000, the tax preparer keeps $80 in fees and they’ll give you $920.

The question you need to ask yourself is how long will it take to get my tax refund from CRA and is this fee to get an early refund worth it?

The CRA usually begins processing tax returns in mid-February. You may be able to file earlier but that’s only if you have all your tax information. Employers are not required to complete their T4 and other information returns until the end of February. Some do so earlier, especially if they are on an electronic payroll system but it’s more likely you will receive your information some time during late January or early February.

According to the CRA notice on tax refunds, their goal is to process paper tax returns within eight weeks. However, tax preparation companies are not filing paper returns. They are e-filing your taxes. Returns that are filed electronically are typically processed in a matter of days and usually within two weeks. If you choose direct deposit, you can receive your tax refund from the CRA even faster.

Why instant tax refunds are worse than payday loans.

So, if you can file as early as February 1 you might get your refund money through an instant refund a month earlier than you would directly from the Canada Revenue Agency. If this is the case, you paid $80 to borrow $920 for one month or the equivalent of 104% annual interest.

If you don’t see a tax company until the end of February, you might only get your refund at most two weeks earlier than if you just wait for the CRA to deposit your refund directly into your bank account.  That would mean you borrowed $920 for two weeks at a cost of $80 or roughly 226%.

That’s pretty close to payday loan rates.

Our recommendation is to have your return e-filed, apply for direct deposit and wait for your income tax refund to come directly from the CRA. If you are tight on cash, that extra $80 might come in more useful than getting your money just a couple of weeks earlier.

If you want to check on the status of your refund with the CRA you can do this online through your MyAccount or MyCRA mobile app or call 1-800-959-1956.  If you call you will need to provide your social insurance number, month and year of birth and total income from line 150 on your current year return.