CALGARY, April 9, 2013 /CNW/ - Tax season in Canada runs from early February to late April for most individuals. Essentially, filing your income tax means sending (through eFiling or mail) your annual income to the Canada Revue Agency (CRA). You can also include charitable donations, as long as you donated enough to receive a tax receipt. The year calculated is the year previous to when you file; for this year, you are calculating the income for 2012.
The CRA will then assess your tax return to qualify you for income tax receivable (money back) or payable (money to be paid). An audit could potentially be conducted by the CRA on your return. This is to check the accuracy or validity of any claims made, so be sure to keep all of your T4 slips and charitable donation tax receipts.
For those who receive money from a tax return, the additional money can serve as extra income. Glen Sharegan, a credit and debit counsellor with Money Mentors, says, "We advise people to be prudent when they receive such funds." Glen suggests people do something smart and rewarding with their refunds, such as:
- Pay down debt - If you are prepared for a financial emergency, then the general rule of thumb is to pay down a debt, usually the one with the highest interest rate. There is a freedom in being debt free. Some suggest paying off the smallest debt first so you can feel the satisfaction of having one debt entirely paid off. However, Glen argues that paying off the highest interest rate first will save you more money in the long run. Both approaches have their merits and so you have to make an informed decision based on your financial position.
- Pay down the mortgage - One of the biggest benefits of paying off your mortgage is having long-term financial security. Without the heavy burden of a mortgage to pay every month, you will be able to enjoy this financial security for a long time. You will probably sleep better knowing that you are protected against the unstable housing market. Also, once the mortgage is paid off you will have extra breathing room in your monthly budget, freeing up some more money to pay off other debts.
- Invest in RRSPs - Putting some cash into an RRSP will serve as your retirement income later in life. Investing in RRSP's will also reduce your tax payable amount on last year's income.
- Put it into a TFSA - You also have the option of putting your refund into a Tax-Free Savings Account. TFSA is almost like a savings account, but it is registered with the federal government. The key benefit of a TFSA account is that you do not have to pay taxes on earnings.
One of the most common reasons why many Canadians get into debt trouble is that they make uninformed financial decisions that can sometimes have a very negative result. But by using your tax refunds wisely, you will be making a smart choice that really benefits you. If you need some help determining what you should do, call Money Mentors at 1-888-294-0076.
Money Mentors is the only Alberta-based, not-for-profit credit counselling agency. Through a number of services, we help families and individuals recover from financial crisis and move forward. From credit counselling and money coaching to retirement planning and community financial literacy, we are contributing to a healthier financial future for the entire province.
SOURCE: Money Mentors
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