If you’re here, you have every reason to celebrate and be excited. You just got a tax refund!
Oh, the possibilities.
If you signed up for direct deposit, your refund will be deposited into your account automatically, as early as two weeks after you file. If not, you’ll likely receive your cheque in the mail within 8 weeks.
While it may be tempting to spend your refund on a trip or a new designer outfit (and we’re not saying you shouldn’t), here are 7 other ideas for making the most of your newfound money.
- Whenever the Canada Revenue Agency (CRA) collects more income tax from you than you owe, you’ll receive that amount as a refund.
- There are many ways to use your tax refund that can improve your financial health and future.
- Knocking off high-interest debt is the best move you can make to relieve financial stress.
1. Pay off debt and outstanding bills
No one likes debt. If you have debts or outstanding bills, a tax refund is an excellent way to tackle them and avoid interest charges.
Pay down a high interest debt
Attacking high-interest debt is the best move you can make to relieve financial stress. Credit cards, we’re looking at you.
In Canada, the average credit card interest rate is around 19%, with rates as high as a whopping 29.99%. This can easily lead to an overwhelming amount of interest payments, especially if you have multiple credit cards.
Paying off past-due bills and the interest penalties they include helps protect your credit score and future credit.
Pay off your mortgage
As a homeowner, you can take advantage of annual lump-sum payments toward your mortgage principal, which is the total amount you borrowed. Most lenders allow these payments, which can range from 5 -25%, each year without penalty.
2. Invest
Why not consider some tried and true investments like RRSPs and GICs, or even consider starting a stock portfolio? That tax refund may be just the thing to get your Warren Buffet mojo on.
Buy stocks, crypto, or NFTs
With all the buzz around do-it-yourself (DIY) investing, more and more folks are funneling their hard-earned chunks of change into the stock market. Consider signing up for an online trading account, and putting your tax refund to work that way. Who knows, you could go from refund to riches. Pretty exciting stuff!
If you’re considering taking the plunge into cryptocurrency and NFTs, learn more about how cryptocurrency earnings play into your taxes.
3. Build your savings
Contribute to a Tax-Free Savings Account (TFSA)
If you’re over 18 years old with a valid Social Insurance number (SIN), you can open up a TFSA to help you earn and save money, tax-free.
With a TFSA, you can buy and sell investments like stocks, bonds and mutual funds without paying taxes on the returns.
Contributions to a TFSA aren’t tax-deductible, meaning you won’t get a tax refund, and there are also limits to how much you can put in. All the same, the ‘tax-sheltered’ status of a TFSA makes it the perfect place to stow emergency funds or retirement income.
Contribute to a Registered Education Savings Plan (RESP)
RESPs are a great way to put money aside for your children’s post-secondary education and earn interest tax-free along the way.
The government adds 20% to your annual contribution through the Canada Education Savings Grant (CESG), up to a maximum of $500 each year for each child beneficiary with a lifetime cap of $7,200.
If you have kids, an investment in their education is always the right answer.
Contribute to a Registered Retirement Savings Plan (RRSP)
RRSPs are a popular and effective way to reduce your taxable income while helping you build that nest egg for your retirement dreams. Who doesn’t want to pay less taxes and enjoy financial stability when they retire?
Explore the tax benefits of RRSPs with our calculator.
Start an emergency fund
Life’s full of surprises, and not all are pleasant. When that rainy day comes, you can be ready with cash on hand to help you weather the storm of unexpected expenses. The best place to stash your emergency funds? A simple savings account that can be accessed at a moment’s notice.
4. Launch a new business
You don’t need millions to launch a business, nor do you have to quit your job to do it. Many successful businesses started on a shoe-string budget, fuelled by passion and desire to get the idea out in the market. Use your tax refund to buy inventory, set up a website, take a business course, or pay for advertising services. It’s never too late to turn your hobby into your dream enterprise.
Re-invest in your business
You may be one of the many people who started their dream business. A tax refund is a perfect windfall to use for new equipment, marketing, advisory services, and more. The expenses you can claim, along with deductions and credits, will sow the seeds of a future refund.
5. Get something you need
If you’ve been holding off on a major expense because of tight budgets, a tax refund is the perfect method to cover the costs of it now. Use the extra cash to pay for auto repairs, dental work, essential purchases, or anything you’ve been avoiding because of the bill. If you really need it, this is the perfect time and way to pay for it.
Make home improvements
Renovations aside, there are several ways to improve your home that’ll pay off in the long run. Replace loose windows and doors, add insulation, or switch to energy-efficient appliances to save on your bills. New fixtures can also yield more of a return and increase the appeal of your property if you decide to sell it.
6. Donate to a cause you care about
Paying it forward by donating to the charity of your choice, will give you a wonderful feeling – and a terrific tax credit. If you’ve been meaning to support a cause you believe in, this is your chance to spread the wealth.
7. Learn a new skill
You can never go wrong with investing in yourself. Whether you’re learning a new skill or improving your mental and physical wellbeing, your options are limitless.
If the thought of enrolling in a class or course piques your interest, the tuition credit is a tax break worth knowing about and yet another perk of learning something new.
At TurboTax, we go out of our way to help you get a maximum tax refund. Beyond that, we’re always thinking of ways for you to use those dollars to help you create a better financial future.
Get the maximum tax refund
Why settle for a refund when you can be assured of the MAXIMUM refund? Every year, TurboTax pulls out all the stops to ensure you get the biggest tax refund possible. What happens next is up to you!
