Clients may see tax refunds (or tax credits) appear in their financial plan when more tax has been paid during the year than is ultimately owed after all deductions and credits have been applied.
How Voyant calculates taxes
Each year, Voyant performs two stages of tax calculation:
- Tax withheld at source – Taxes are estimated and withheld from income as it is received (for example, employment income, pension income, or certain registered account withdrawals).
- Year-end tax calculation – At the end of the year, Voyant performs a full tax assessment, taking into account all income, deductions, and eligible tax credits for the year.
If the final tax liability is lower than the amount already withheld, the difference is modelled as a tax refund in the following year, similar to how a client would receive a refund after filing their annual Canadian income tax return.
Example
Consider a client who is employed and makes contributions to an RRSP throughout the year.
Employment income is subject to payroll withholding based on estimated taxable income. However, RRSP contributions reduce the client's taxable income and are generally recognized when the annual tax return is filed rather than through payroll withholding alone.
When Voyant performs the year-end tax calculation, it applies the RRSP deduction and recalculates the client's tax liability. If too much tax was withheld during the year, the software models the resulting refund in the following year.
Other situations that can generate a tax refund
A tax refund may also occur when the client benefits from deductions or credits that reduce their final tax liability after tax has already been withheld. Common examples include:
- RRSP contributions
- Deductible interest expenses (where permitted under Canadian tax rules)
- Tax-deductible expenses
- Charitable donation tax credits
- Tuition, education, or other non-refundable tax credits
- Dividend tax credits
- Other federal or provincial tax credits
Why does the refund appear in the following year?
Voyant models tax adjustments as part of the annual tax filing process. While some deductions or credits may reduce tax withholding during the year in real life (for example, through updated payroll withholding authorizations), the software generally assumes that the final reconciliation occurs when the annual tax return is filed.
As a result, any overpayment of tax identified during the year-end calculation is shown as a tax refund in the following year.
Key takeaway
A tax refund or credit in Voyant does not necessarily indicate an error. It usually reflects that taxes withheld during the year exceeded the client's final tax liability after all eligible deductions and tax credits were applied during the annual tax calculation.