Getting a refund? Tackle that credit card debt. •  CORD FILE PHOTO

Getting a refund? Tackle that credit card debt. • CORD FILE PHOTO



What to do with your refund

David Cameron Moore is a Financial Consultant with Investors Group Financial Services Inc., practicing financial and investment planning, and insurance, tax, and estate planning with successful individuals and families in KW Region. Find him online at davidcameronmoore.com

Most of us have done it. A tax refund feels like a nice bonus, and the temptation is almost always to take the money and run – to the mall or home renovation store or car lot. But if you do that, then poof – it’s gone. You’ve probably missed an opportunity to improve your financial situation.

So what could you have done differently to have an impact on your financial life?

Option 1: RRSP

Take that tax refund and use it to get a jump on next years’ tax savings. You’ll not only get the deduction for next year, but you’ll get potential growth that you would have otherwise missed by waiting until the end of the year.

Option 2: TFSA

While there’s no tax deduction for your contribution to a TFSA, the investment income is sheltered from taxes, and you can re-contribute your withdrawals in future years. These make the TFSA a powerful way to save for major purchases or lifestyle enhancements in retirement.

Option 3: Invest

If you’ve maxed your RRSP and TFSA, consider investing in stocks or equity funds. Holding these outside of your registered funds is a good strategy since, if done properly, you’re likely to have favorable tax treatment on capital gains. And don’t forget about the dividend tax credit on Canadian investments!

Option 4: RESP

This is another great way to tax shelter the growth on your savings. and if you’ve got kids you can’t start soon enough! That university education isn’t going to pay for itself, and by contributing to RESPs, you may be eligible for grants that will have the federal government footing part of the bill.

Option 5: Debt Payments

Reducing your debt is always a great option. Start with those pesky credit cards, paying the highest interest rate card first. All caught up on the plastic payments? A prepayment on your mortgage, if allowed by your mortgage terms, can save you a bundle.

Option 6: Rainy Day Fund

You can always invest your refund into a short term investment. You’ll want something you can have access to without penalty – you don’t want to have to pick when the car or the furnace break down.

Option 7: Lose it!

Ok, I don’t mean drop it in the park for someone else to find it. I mean take into consideration why you’re getting a refund. It’s really not ideal – the government hasn’t decided to be generous, and you’re not the winner of some clearing house contest they’ve held. What’s happened is you’ve paid too much tax over the year, and the government is giving it back to you – without interest. Fill out a T1213 form on cra-arc.gc.ca to apply to have your withholding tax lowered – and then take the difference and use it wisely!

David Cameron Moore is a Financial Consultant with Investors Group Financial Services Inc., practicing financial and investment planning, and insurance, tax, and estate planning with successful individuals and families in KW Region. Find him online at davidcameronmoore.com.