It’s great to get a tax refund, isn’t it? So, what are you going to do with it? In past years, you might have been sorely tempted to spend it on a guilty pleasure but maybe not in this more economically ‘iffy’ year.
However – ‘if’ you want to improve your personal economy in the longer run, here are a few options for making the best use of your tax refund.
Accelerate your RRSP. Get a head start on your next year’s Registered Retirement Savings Plan (RRSP) contribution. You’ll benefit from almost an extra year of potential long-term RRSP
tax-deferred growth, plus a tax deduction against your taxes next year.
Check out new investment opportunities: If your RRSP is topped up, use your refund to:
• Open a Tax-Free Savings Account – you’ll enjoy tax-free earnings and growth and you can make tax-free withdrawals at any time for any use you can imagine.
• Add to your non-registered investments. The best tax-reducing strategy is to hold stocks and equity mutual funds outside an RRSP. Any gains on these investments are taxed at
the more favourable capital gains inclusion rate and Canadian dividends received from these types of investments qualify for the dividend tax credit.
Build an education fund. Fund your children’s future education costs with a Registered Education Savings Plan (RESP). RESP contributions are not tax deductible, but their growth is tax deferred and they qualify for Canada Education Savings Grants* of 20 per cent or more of your contribution.
Pay down your most costly debt. The interest rate on credit card debt can range from 15 to 29 per cent per annum – so be sure to reduce or eliminate that debt first.
Pay down your long-term debt. Taken care of your high-cost debt? Then pay down nondeductible debt like your mortgage. Every pre-payment will reduce your repayment schedule
and could save plenty in interest payments.
Zero next year’s refund. Why give the government an interest-free loan of your money for a year and have to wait for a refund cheque? Apply to have less tax withheld from your pay cheque and you’ll have a little more money for your own use every pay period. Apply to lower your withholding tax using File Form T1213, available from your local CRA office or from the CRA Website, www.cra-arc.gc.ca.
It’s great to get a tax refund – but it’s even better to have a comprehensive tax and financial plan. A professional financial advisor can help develop the right plan for you.
* Canada Education Savings Grant and Canada Learning Bond are sponsored by Human Resources and Skills
John Scholl B. Mathematics, CGA,
Wealth Management & Financial Planning
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