The best way to spend your tax refund
You’ve successfully filed your taxes for the year, which means hallelujah, the hard part is over! Yet those receiving a tax refund this year may be faced with a whole new challenge – what to do with the money. While we imagine you have no shortage of ideas for ways to spend it, it’s smart to think about your tax return strategy before making any impulse decisions.
It can be so tempting to splurge on something shiny and new, but first hear us out on some suggestions for how to take advantage of your refund.
Contribute to your Registered Retirement Savings Plan (RRSP)
A survey we commissioned earlier this year revealed only 33 per cent of Canadians intended to contribute to a Registered Retirement Savings Plan (RRSP) by the 2017 deadline – which means that many Canadians are missing out! Putting your tax return towards an RRSP is a great option for several reasons. First off, it’s a great way to lower income tax and potentially increase your return the following year, as money contributed to an RRSP is tax deductible. Further, the money contributed grows tax-free for many years to come, providing the opportunity for a bright retirement. We’ve got a whole blog post about RRSP’s if you’re looking to learn more.
Start or contribute to a Tax-Free Savings Account (TFSA)
Contributing to a TFSA is also a great option, though our survey also revealed that only 37 per cent of Canadians planned to contribute to a TFSA in 2017. Contributing to a TFSA provides the opportunity to set money aside tax-free throughout your lifetime. The contribution limit for 2018 is $5,500 , plus you can put back in any amounts you withdrew in 2017. What’s great about a TFSA is that you can make contributions anytime during the year either periodically or as a lump sum (this is where that tax refund comes in!).
Pay off debt or student loans
If you’re saddled with debt, perhaps from a student loan, getting a tax refund is perfect for seizing the opportunity to pay it down. Especially if you have debt that’s high interest, it’s best to pay it off as quickly as possible so that you’ll be able to explore other options for next year’s tax refund strategy.
Invest in your home with some renovations
We all have a vision of our dream kitchen or bedroom, but the reality is that renovations can be expensive. Getting a tax refund can be the perfect opportunity to work towards your dream home. Plus, renovations can provide a great return on investment when it comes time to sell your property.
Contribute to a Registered Education Savings Plan (RESP)
An RESP is a government-registered plan that helps you save for a child’s post-secondary education. Contributing to a RESP helps pay for an education for that child in your life, but the best part is you’ll also generate a Canada Education Savings Grant from the government, which will effectively boost the return in the RESP. Hooray!
If you’re interested in learning more about savings strategies visit https://www.hrblock.ca/office-locator/ to find a location nearest you and chat with one of our tax professionals.