7 smart ways to use your tax refund


Talk to your advisor. Together you can go over your situation and find the right solutions for you.

Adèle Manseau | Desjardins Group

You've got one month left to file your 2017 tax return on time! Getting a refund? If so, the big question is how will you use it? 

Angela Iermieri*, financial planner with Desjardins Group, shares a few ideas.

1. Pay off your credit cards and other high-interest debt, so making ends meet gets a little easier
By getting rid of your debt as quickly as possible, you'll pay less interest.

Are your interest rates sky high? Consolidating your debt into a single loan could be a good solution. You'd have the advantage of a single payment for everything you owe and chances are good you'd also get a lower rate.

2. Start an emergency fund, so you don't need credit when faced with unexpected expenses 
By putting money aside in an emergency fund, you can prepare for the unexpected and avoid having to rely on credit--and all the expenses that go with it. It's generally recommended that you set aside enough money to cover 3 to 6 months of living expenses. 

Start with your tax refund and then add a little more on a regular basis: you'll see a big difference over the long term. 

A tax-free savings account (TFSA) is a great tool for creating an emergency fund because withdrawals are flexible--just remember to choose a cashable investment vehicle.

3. Open an RESP to help your children or grandchildren get a post-secondary education
Give your education savings strategy a boost and cash in on government grants.

The sooner you open a registered education savings plan (RESP), the sooner the government will start rewarding you for planning ahead. Plus, time will be on your side as your investment grows tax-free.

4. Use your RRSP to get another refund
RRSP contributions reduce your taxable income, which can help you qualify for income-based tax credits and benefits programs. 

That includes the Canada child benefit (CCB), childcare expenses deduction and the GST/HST credit. 

5. Increase your RRSP contributions to boost your retirement savings
By re-investing your tax refund in your RRSP, you'll boost your retirement savings even more. This strategy will also help you catch up on unused contribution room from previous years. 

Keep in mind that the sooner you contribute, the sooner your investments can start growing tax-free.

6. Pay down your mortgage faster
You can pay down your mortgage faster by paying up to an extra 15% of the amount you initially borrowed each year.

Want to really maximize this strategy? Contribute to your RRSP and use your tax refund to pay down your mortgage.

If you're getting close to retirement, this is a great way to start reducing your financial obligations.

7. Put money aside in your TFSA to help pay for a vacation, renovations or another big purchase
A TFSA offers plenty of flexibility when it comes to using your savings.  

A few of the TFSA's notable features:  
  • Non-taxable investment income so your savings add up faster
  • Tax-free withdrawals whenever you need them, depending on the type of investment
    • Your contribution room is carried over from year to year. In other words, you can recontribute the amount you withdrew one year in the next.
While convenient for withdrawals, to get the full benefit of a TFSA, avoid using it like a regular banking account.

Not sure which option is best for you? Talk to your advisor. Together you can go over your situation and find the right solutions for you.

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* Financial Planner and Mutual Funds Representative for Desjardins Financial Services Firm Inc.

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