Ten Things to Do with Your Tax Refund

In the mail this week I received my refund cheque from CCRA, like many of you; I have a choice to make. Understanding the urge to spend it on travel, shopping or dining, here are a few suggestions that will help keep everyone’s financial affairs firmly on the ground.

1.       Your RRSP  This will help generate another refund, but in the meanwhile is arguably and interest-free loan to the government until you file next year’s return.  You could offset this by filing with CCRA to reduce tax deductions at source over the coming year.

2.       Spousal RRSP  Rest assured that the spousal RRSP remains a useful income-splitting tool even with the advent of the pension-splitting rules, particularly if access is desired prior to age 65.

3.       RRSP loan paydown  If you took out a loan for your RRSP contribution, a prudent use of the refund is to now eliminate or significantly reduce the loan balance.  

4.       Mortgage reduction  The sooner a mortgage is retired, the sooner there will be amore in the monthly budget to devote to retirement savings.  Whether you choose mortgage or savings both contribute to your comfort level, financially and psychologically.

5.       Paying down non-deductible debt  Regardless of why we have debt, this kind of debt often compounds against us faster than we can accumulate savings.  Eliminating such costly commitments makes finances more manageable.

6.       TFSA  Not since the entry of the RRSP in 1957 has tax-sheltered investing been made so broadly and easily available.  Consider also that a cash gift to a spouse that makes its way into a TFSA will not be subject to spousal income attribution rules.

7.       RESP  Especially for deposits that attract government grants, an RESP is great for education saving and income splitting.  As well, investing a little each year will reduce sticker shock down the road when you see the amount due on your child’s acceptance letter.

8.       RDSP  Significant government support and tax benefits are available through these plans for families with disability issues. 

9.       Non-registered investments  Whether investing directly or using leverage, tax effect is a key issue when managing non-registered investments.  Make sure to have a plan and dovetail it with other savings.

10.   Live it up… a bit   After all, saving is just spending-in-waiting – but try and maintain balance.

Have  a great weekend,

Tracey

Source:  Invesco Tax & Estate matters