Are you expecting a tax refund this year? If you are, here are some ideas you should consider.
- Pay down non-deductible debt: If you have credit cards, instalment loans or a mortgage, consider using your tax refund to pay down these debts.
Tip: Pay-off the highest interest rate loans first.
- Contribute to your child’s education: While your contribution to an RESP cannot be deducted from your income taxes, the government will make matching contributions. The contributions are 20% of your contributions to an annual maximum of $500.
- Make an RRSP contribution. If you have RRSP contribution room and are in the top marginal bracket, you can save yourself roughly $0.45 on each dollar you contribute to an RRSP (depending on what province you live in).
- Put it into your TFSA. If you have no more RRSP room or want to invest the refund short-term and use it later, consider putting it into your TFSA.
- Take advantage of the Home Renovation Tax Credit. If you do some renovations and start between after January 27, 2009 and February 1, 2010 you’ll be eligible for the tax credit.
- Donate it to charity. You get a basic tax credit of 15% of the donation for the first $200 donated and 29% for every dollar donated thereafter. Each province has a matching system of credits as well.
- Go and buy something… There is a recession my friends. By going out and buying a car, a new TV, or furniture.
Tip: Reduce Your Refund Next Year
When you overpay your tax during the year, you are lending the CRA money interest free!
If you consistently receive large refunds every year, you should consider having your instalments reduced. If you employed and receive T4 income, you should consider asking the Canada Revenue Agency (CRA) for permission to reduce the tax withheld from your paycheque. CRA Request To Reduce Tax Deductions At Source