Income tax season is just around the corner. As I write this article we are in the middle of February and employers are feverishly working on getting T4 slips out to their employees. Government agencies are also churning out relevant slips to their clients: those on Social Assistance or on Workman’s Compensation just to name a couple.
What I want to shed some light on today is the concept of receiving your income tax refund on the spot without having to wait for the government to process your return and cut you a cheque or make a direct deposit.
What is Discounting?
This is process of a taxpayer receiving his or her income tax refund immediately without having to wait for the CRA to process their return. In exchange for this service, the discounter deducts a fee based on a prescribed %. A discounter is only allowed to charge a maximum of 15% for a refund of $300 or less and 5% for any amount above above $300. So lets say you are expecting a refund of $500.00. The cost to you would be:
300 X 15% = $45
200 X 5% = $10
Total Cost of Discounting $55
The discounter would pay you $500 – $55 = $445 on the spot. Whenever the CRA processes the return, they would send the discounter the total refund of $500.
Is it worth having your refund discounted?
Some may argue that the costs of discounting are not worth it. In the example I provided above, the cost is $55, or 5.5% of the refund amount. When looked at in isolation, the cost does seem high, but you must also consider that this is the total fees that the discounter is allowed to charge as it relates preparing and filing your tax return. To determine whether discounting is worth it, you would have to consider the incremental cost for discounting. For example, if my firm were to prepare and file your return and lets say we charged you $30, then you would have to pay for the filing on the spot as well as wait for the CRA process your return. Comparing the $30 out of pocket with the $55 it would cost through discounting, the incremental costs is only $25 or 2.5% of your refund. Granted, to some, even $25 is a high costs to pay for this convenience, but to others this might be worth the cost. You will have to evaluate based on your personal circumstances whether having your refunded discounted is something that would work for you.
How do I have my refund discounted?
If your income tax preparer offers discounting services then the process is pretty straightforward. You have to authorize your tax preparer to check to ensure that you do not have prior amounts owing to the government that would affect the discounting process. Clients have two ways to provide authorization
By filing form T1013 and mailing it to the CRA – this usually takes 4 weeks to process
Online through My Account:
- If you have My Account already set up then you simply have to sign in and click on the left panel under Authorize my representative. He/She will provide you with a RepID (mine is LH6S6S6). The RepID is provided by the CRA to the discounter and permits them to provide EFILING Services which is a prerequisite of providing Discounting services.
- If you do not have My Account set up, then you will need to do so. You will be asked for some personal information and then will be a sent a code on the mail to authenticate who you are. You would then take this code and validate your My Account access. Once you have access, simply follow the instructions above to enter the RepID.
Once authorization is received, the tax preparer can evaluate whether or not you qualify for your tax refund to be discounted. If all goes well you should have your refund in hand very shortly. A Discounter must provide you with a refund before asking you to sign any other forms and also must provide you with copies of any forms that you are required to sign.
If you are considering having your refund discounted this year and have determined that this works for your situation, it is best to have My Account set-up. My Account is a valuable tool, not just for discounting, but for having access to vital information on your tax accounts. The CRA is encouraging us to do conduct more of our business with them electronically rather than through paper form filing.
If you have any questions about the Discounting process or need help getting My Account set-up, please contact me at 416-520-6106 or by email at firstname.lastname@example.org
Amer Sheikh Accounting & Tax is a CRA approved EFILER and Discounter.