You’ve filed your taxes (or you’re planning to very soon) and you’re expecting an income tax refund. To some, this perceived windfall is a sign to go on a spending binge.
According to Canada Revenue Agency, the average income tax refund in 2017 was about $1,765. That’s about the cost of a nice all-inclusive vacation in the sunny south, some very nice dinners out, or a decent shopping spree.
If you’re getting a return, this means you’ve overpaid taxes and you’re simply getting some of that back. Stop treating your tax refund as “extra” cash. Here are some smart ways to put that tax refund to work.
It’s unlikely that you’ll miss this chunk of money, since you’ve technically already paid your taxes and are just getting some of that back. Use it to pay off some debt and reduce the interest you’re paying on that loan. Less interest paid means more money in the bank for your living expenses.
Leaving that cash in a savings or chequing account makes it easy to access – and spend. Take advantage of tax savings in 2018 by depositing your 2017 refund into your Registered Retirement Savings Plan or a Tax-Free Savings Account.
While your tax refund may not be enough to fund a full-blown renovation, the average refund is definitely enough to cover some upgrades in your home. This can boost your return if you’re planning to sell this spring. If you’re planning to stay in the home, you’ll enjoy the added liveability – and some shiny new faucets!
Depending on your mortgage terms and conditions, you may be able to make a lump-sum payment. You’ll pay less in interest and more in principal. While $1,765 may seem like a drop in the bucket, every dollar counts.
If home ownership is part of your future plan, deposit your tax refund into a “down payment” fund. An RRSP is a great option. You’ll enjoy a tax break, and you can borrow up to $25,000 (tax-free!) for your down payment and other home purchase-related costs when you’re ready to buy.