Article by VITA Daily, featuring LT Wealth’s Terry Wright: To read the original article, click here.
There’s a moment many Canadians look forward to every spring: logging into their tax return and seeing a big refund waiting. But while that “bonus” feels like a win, it might actually be a signal that you’ve been giving the government an interest-free loan all year instead of putting that money toward your own investments or daily expenses.
The interesting part? This annual ritual is less about math and more about psychology. Even the most financially savvy individuals often make emotional decisions during tax season, feeling a sense of relief at a refund and stress at the idea of owing—even when owing can actually mean you managed your cash flow more efficiently.
We sat down with Terry Wright, CIM, Partner and Adviser at LT Wealth Management Partners, to break down the “sweet spot” for tax returns and the simple habits that can turn tax season from a high-stress scramble into a strategic financial reset. —Noa Nichol
The Interest-Free Loan: You often note that a large tax refund is actually an interest-free loan to the government. How do you explain this “hidden cost” to clients who are initially thrilled to see a big return?
When clients tell me they received a large refund, my first reaction is usually to ask how big it was. If someone tells me they received a refund of around $10,000, I explain that what actually happened is they effectively gave the government that same amount as an interest-free loan throughout the year.
From a mathematical standpoint, the ideal outcome is to pay the government exactly what you owe, no more and no less. When you consistently receive large refunds, it means that money was sitting with the government instead of working for you.
In real life, though, people don’t react to the math, they react to the feeling. Receiving a refund feels like a bonus or unexpected windfall, even though it’s simply your own money being returned to you.
So I often frame it this way for clients: If you had that same amount invested throughout the year, earning even a modest return of around 5%, how much could that money have grown instead of sitting idle? That opportunity cost is the real hidden cost of a large refund.
Math vs. Emotion: Why do even financially savvy Canadians make emotional decisions during tax season, and how does the relief of a refund cloud our better financial judgment?
Statistically, the math around taxes is usually straightforward. But implementation is where psychology enters the picture. Even highly successful professionals make decisions based on how something feels rather than what the numbers say.
A tax refund is a perfect example of mental accounting. When people receive a refund of $10,000, they often perceive it as new money. Psychologically, it feels like a reward, even though it’s simply money they already earned.
At the same time, owing money to the government triggers the opposite emotional response. Even if someone had that cash available all year, owing anything in April feels like a loss.
That reaction is driven by behavioural biases such as loss aversion, where people feel the pain of giving something up more strongly than the satisfaction of receiving it. So even financially sophisticated individuals can make decisions that feel safer emotionally, but are less efficient financially.
If you were to have kept that same $10,000 invested at 5%, you would have $500 more after a year than if that $10,000 was “pre-paid” to the CRA through tax deductions, only for you to receive it back in the spring as a “refund”.
The Fear of Owing: There is a specific “emotional reason” people hate owing money in April, even if it means they managed their cash flow more efficiently all year. How can taxpayers reframe “owing” as a sign of financial success?
Most people grow up with the belief that owing money is always a bad thing. Debt is often framed as something to avoid at all costs.
But in financial planning, context matters.
If someone owes a small amount at tax time, for example, $2,000, that can actually be a sign that their cash flow was managed efficiently throughout the year.
It means they kept more of their own money working for them instead of sending it to the government early.
One way I explain it to clients is that taxes are simply a reconciliation. The goal is accuracy, not necessarily getting a refund. If you owe a manageable amount, it often means you held onto your capital longer and potentially used it to invest, reduce debt, or support other financial goals.
Reframing the situation that way helps people understand that owing money at tax time isn’t necessarily a failure. In many cases, it’s simply a sign of more efficient financial management.
Finding the “Sweet Spot”: You mention a secret “sweet spot” for tax returns. Without giving away all your secrets, what does a “perfect” return look like from an adviser’s perspective?
In a perfect world, your tax return would come as close as possible to zero. That means you paid almost exactly the amount of tax you owed throughout the year.
In practice, I often tell clients that owing a small amount can actually be the most efficient outcome, as long as it stays below $3,000. Once you consistently owe more than that, the CRA may require you to begin making installment payments the following year, which we typically want to avoid.
If the amount owed remains under that threshold, it often means you kept more of your own money working for you throughout the year instead of sending it to the government early.If that $3000 were to have grown at historical stock market averages of 10%, you would have $300 more than you otherwise would have!
The key point is that the goal isn’t to maximize refunds. The goal is to maximize the efficiency of your capital throughout the year.
Stress-Free Habits: Beyond the paperwork, what are the simple, repeatable habits that make tax season far less stressful for the average person?
The single biggest factor that reduces tax stress is organization.
One of the simplest habits I recommend is creating a digital folder for each tax year, for example, “2025 Taxes.” Every time you receive a tax document, receipt, or investment statement, you simply drop it into that folder.
Everything can be scanned or downloaded electronically now, so the process takes only a few seconds.
When tax season arrives, you already have everything in one place. At that point, you can simply compress the folder and send it to your accountant or financial advisor.
It’s a small habit, but it eliminates the scramble many people experience every April.
The Organization Myth: Many people look for last-minute “tax tips,” but you argue that year-round organization matters more. What is one small thing someone can do today to save themselves a headache next April?
One of the simplest things someone can do today is take 10 minutes to review how their taxes are actually being paid throughout the year. Again, keep everything organized. When you receive things like charitable donation receipts, investment slips, or other tax-related documents, scan or download them immediately and place them in that folder. The goal is to make sure nothing gets lost or forgotten over the course of the year.
Many Canadians never look at their payroll deductions or tax withholdings until their return is filed, which is why large refunds or surprise balances owing happen so often. A quick mid-year review can help you understand whether too much or too little tax is being withheld.
If adjustments are needed, they can usually be made well before the end of the year, which prevents the big emotional reactions people tend to have when they file in April.
In other words, the best tax “tip” usually isn’t something you do in April. It’s paying attention to your taxes before tax season arrives.
Common Behavioural Patterns: What is the most common—or most surprising—money behaviour you see play out with Canadians every single April?
One of the most consistent patterns is how many people actively hope for a refund, simply because it feels like “free money.” In reality, it is their own money being returned after the Canada Revenue Agency has held onto it, often for up to a year, without paying any interest.
It is a powerful example of how emotion can override logic. The psychological reward of receiving a lump sum tends to outweigh the financial reality that those funds could have been earning interest, reducing debt, or being invested throughout the year.
Opportunity Cost: If a Canadian is consistently getting a massive refund, what are the top three things they could have been doing with that money throughout the year instead of letting it sit with the government?
If someone is consistently receiving large refunds, there are several ways that money could have been used more productively throughout the year.
It could be invested in a TFSA or investment account earning interest or market return. Or it could be used to reduce higher-interest debt, which immediately improves your financial position.
Ideally, it could also be directed toward long-term investment vehicles like RRSP contributions, which can reduce your taxable income and generate a deduction on your personal income tax return. In other words, instead of overpaying taxes throughout the year and waiting for a refund, you could proactively direct that same money into an RRSP where it begins compounding over time. Not only does the investment have the potential to grow, but the contribution itself can lower your taxable income, creating an additional layer of tax efficiency.
The key concept here is opportunity cost. Every dollar that sits idle with the government is a dollar that isn’t compounding or working toward your financial goals.
The Psychology of the “Bonus”: Does the “found money” mentality of a refund lead to poorer spending choices compared to a regular paycheck?
It often does.
When money arrives through a regular paycheck, people typically associate it with their income and responsibilities. They tend to budget it more carefully.
A tax refund, on the other hand, is often treated as “extra” money. Psychologically, it feels separate from normal income, which can lead people to spend it more freely.
That mindset is another example of mental accounting. Even though the money originally came from their own earnings, it feels different when it arrives in a lump sum.
Investment Efficiency: At LT Wealth Management Partners, how do you help clients adjust their payroll or investment strategies mid-year so they aren’t overpaying the government in the first place?
Personally, I aim to avoid overpaying the Canada Revenue Agency throughout the year. The best way to do this is by estimating your total annual income, including employment earnings and any additional income sources, and then aligning your tax withholdings as closely as possible to that estimate.
This approach allows you to stay in control of your cash flow rather than having excess funds tied up with the government. In an ideal scenario, you would owe just under $3,000 when you file your return. This means you have kept that money in your own accounts throughout the year, where it has the opportunity to earn interest or generate returns.
