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6 Smart Things to Do With Your Tax Return

  1. Stop treating it like found money 
    Although most Canadians are happy to receive a tax refund, there’s very little reason for celebration – you’ve actually been giving CRA an interest-free loan throughout the year. Instead of treating it like found money, it is important to spend it prudently and resist the temptation to splurge on material items.
  2. Pay down bad debts
    If you have outstanding bills, credit card balances, lines of credit, student loans etc. the smartest use of your tax refund is to put it towards amounts owing. Debts with the highest interest rate (usually your credit card) should always be paid down first.
  3. Top-up your rainy day savings
    A rainy day or emergency fund is money set aside to protect you when an unexpected event occurs that affects your cash flow (i.e. job loss, home repair, etc.) The rule of thumb is to have 3-6 months of expenses readily accessible, meaning not invested. Without this safety net, just one surprise major expense can not only be stressful but send your financial situation into a downward spiral.
  4. Invest in your future
    If you have the contribution room, use your tax refund to top-up your TFSA, FHSA or RRSP. Even small amounts with the effects of compounding make a big difference in the long-run. Contributing to your RRSP or FHSA will also provide additional tax savings from the deduction you will get on your next year's tax return - brilliant!
  5. Put it towards a home improvement project
    Your home is one of the most tax-efficient assets there is. The principal residence exemption allows Canadians to pay no tax when they sell their house, so making improvements that add value is always an excellent investment.
  6. Treat yourself
    Yes, it is ok to treat yourself! If you have paid down debts, diligently saved throughout the year and are on track towards your other financial goals, use your refund to have a little fun. Go on vacation, take your family out to a nice dinner, have a spa day, whatever makes you happy. Just don't get too carried away, remember that a $500 refund does not necessarily justify a $2,000 trip.

Posted In: Taxes