TORONTO, April 28 /CNW/ - With only several days left for Canadians to
file tax returns, it is time to start thinking about smart options for your
A tax refund is essentially taxes that were overpaid that the government
is putting back in your pocket. At the end of tax season last year, the
average refund was more than $1,400 according to the Canada Revenue Agency.
There are many options, depending on your personal goals, for how to put that
refund back to work for you.
A recent BMO survey showed that 51 per cent of Canadians who will receive
a 2008 tax refund intend to spend it on sensible, long-term needs. Only 12 per
cent intend to use their tax refund to pamper themselves.
"Make the most of your tax refund, talk to a financial planner who can
help you decide what is the best option for you," said Tina Di Vito, Director,
Retirement Strategies, BMO Financial Group.
Here are some suggestions:
Put into TFSA
This allows your savings to grow tax-free as you can set aside up to
$5,000 every year and never pay tax on the income earned. The TFSA is also a
great way to save for mid-term goals (1-5 years) or to supplement retirement
savings. You can withdraw and re-invest at any time without any tax
implications. It's also another option for those who are already saving
outside of their RSP.
Contribute to RRSP
Chip in early towards your 2009 RRSP contribution allowing you to benefit
from almost an extra year of potential long-term RRSP tax-deferred growth.
RRSPs are not just for retirement - they can also help with your first home
purchase. Since January 27, 2009, the amount that an eligible first time home
buyer is permitted to withdraw tax-free from an RRSP to help finance the
purchase of a home increased from $20,000 to $25,000.
Pay down your mortgage
Put a prepayment lump sum into your mortgage - any prepayments you have
made to your mortgage end up in an account which can be accessed at any time.
Every prepayment on your mortgage reduces the total interest you pay in the
Add value to your home
Take advantage of the Home Renovation Tax Credit (HRTC). Homeowners can
claim a 15 per cent non-refundable tax credit for eligible renovations costing
between $1,000 and $10,000 after January 27, 2009 and before February 1, 2010.
Pay off debt
Use your refund to pay off the balance on any loans or credit card debt.
Pay the high-cost debt first, and then pay your non-deductable debt, such as
Reserve for emergency
It's a good idea to have cash at hand to cover four months' worth of
expenses, in the event that your income is temporarily interrupted or other
financial obligations arise. Put this reserve into a separate account so you
are not tempted to spend it.
The Leger Marketing online poll was conducted from February 5 to 9, 2009
and is based on a sample of 1,502 Canadians aged 18 and older. The margin of
error for a sample of this size is +/- 2.5%, 19 times out of 20.
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