How to Make the Most of Your Tax Refund
Taxes for the 2016 tax year are due April 30, 2017 at midnight. So, if you haven’t filed yet, get on it!
According to Canada Revenue Agency (CRA), the average tax refund in Canada is approximately $1,600 and a total of $127 billion is collected from Canadians.
For the lucky ones receiving a refund, it feels like an extra paycheque! Hello Vitamix!
But, it’s actually not. It just means you’ve paid too much in taxes throughout the year and are getting a long-awaited refund.
We recommend a strategic approach if you’re getting a refund.
Allocate 30% to your RRSP. You’ll receive another tax deduction for next year’s tax return in exchange for your contribution. Annually, you’re allowed to contribute up to 18% of your income in your RRSP. In most cases, the generous tax advantages within the RRSP make it the best tool for long-term retirement savings.
Alternatively, you can top up your TFSA account. But keep in mind you won’t get a tax credit. Rather, your money will grow tax-free until withdrawal.
Apply 30% to bad debt such as credit cards, car loans or lines of credit. If you’re lucky not to have bad debt, pay down your mortgage instead. Making an extra monthly or bi-weekly payment each year can shave years off your mortgage and save you thousands of dollars in interest.
What have you been eye-balling all year? Patio furniture, running shoes, golf clubs, or vacation? Use the remaining 30% of your return and reward yourself! Though it may seem counterintuitive, wealthy people don’t shy away from rewarding themselves. They’re just smart not to go into debt to pay for the things they want and they make sure their financial house is totally in order before they splurge.
Pick your favourite charity and give them 10% of your tax refund. Not only will this help your community and make you feel good, but the Canada Revenue Agency will issue you an attractive tax credit which can be applied to next year’s tax return. Canada Helps makes giving easy because you can give online automatically.
Take a balanced approach to managing your tax refund and try to build-up tax credits for next year while reducing debt and rewarding yourself.