How to Maximize Your Tax Refund in Canada: Top 10 Ways

I’m not a fan of the “tax refund”. When you receive one, it means the government has had use of your money and you didn’t.

If by chance you are getting a tax refund, it may feel like a windfall, but it isn’t. You do, however, get a second chance to get the biggest bang for your buck, and maximize your returns.

For some, a tax refund may be the financial boost you need right now, so never feel guilty using it to improve your financial health.

Here are my top 10 ways to maximize your tax refund

1) Pay down debt: Use your refund to improve your balance sheet. High-interest credit cards with large balances can take years to pay off. Paying a lump sum on your mortgage can help reduce the outstanding balance, save you money in interest payments, and reduce the loan duration. Paying off debt is one of the absolute best ways to increase your financial wellbeing.

2) Build up your emergency fund: There is little doubt the Canadian economy is softening. While the Canadian job market has proven to be very resilient, this can feel somewhat meaningless until you lose your job. Ask yourself, if you lost your job today, do you have access to money to maintain three-to-six months, or even nine months, of living expenses? If the answer is no, tuck your tax refund into cash or near-cash equivalents so you have access to money should you need it.

3) Invest for the future: The stock market has been a tough place to be in the past year as interest rates headed higher and volatility has been extreme. For the first time in a long time, savers are being rewarded. There is a valid reason for sitting on cash right now. However, the savvy individual who has at least a 5-year time horizon might want to consider investing in good quality stocks that have beaten down and have real earnings, pay a dividend, and have cash on hand. I would consider exploring exchange-traded funds, and balanced growth mutual funds by implementing a pre-authorized purchase plan where you buy into the market slowly and steadily over time.

4) Make some home improvements: Sometimes you have to spend money to make money. Consider using your refund to make your home more energy efficient. Replacing windows, a new roof, energy-efficient appliances, or renovating the kitchen and bathrooms can all help to increase the value of your home and potentially save on utility costs in the long run.

5) Invest in yourself: I believe in lifelong learning. There is a danger in becoming comfortable and not upgrading your skills as the economy evolves. Consider using your refund to take an online course or invest in a side hustle to give you a competitive edge. Whatever lights you up may be the spark you need to invest in a small business endeavour. Your tax refund could help realize that dream.

6) Donate to charity: Consider donating a portion of your tax return to a charitable cause. Not only will you be helping others, but charitable donations are also tax-deductible. It is a win/win. Consider the causes that aligned with your values, decide where to donate, research the charity, and accept that while you can’t help everyone, you just might be able to help someone.

7) Take a vacation: Yes, taking a vacation is a responsible thing to do with your tax refund. It is ok to treat yourself and your family, especially if you have been saving all year and have no other pressing financial needs. It can be great for your mental health to spend time recharging and relaxing.

8) Retirement planning: Take your tax refund and put the money in an RRSP. It is never a bad time to put money away for your retirement. Retirement could be a third of your life, and, by adding to your RRSP, you benefit from time and compounding interest. Small amounts can go a long way.

9) Goals: If you are saving for something that matters to you, take your tax refund and put it into your TFSA. While you don’t get a tax break, putting money into a TFSA provides preferential tax treatment for your investments and will help your money grow just that much faster.

10) Give yourself permission to spend: When it comes to money you should save some, spend some and give some. Think of your financial life like a three-legged stool and if one of the legs is out of balance your run the risk of falling out of balance.

Bottom line: Go ahead and celebrate your tax refund and make that money work for you.

Pattie –

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