Got a tax refund? Here’s how you could put it to good use, according to experts – National
It’s a joy many Canadians experience during tax season. After diligently plugging in all my expenses and income statements from last year, it turned out that I had overpaid to the Canada Revenue Agency and received a tax refund!
If you’re lucky enough to avoid paying your CRA during this time, you may start to get confused about what you can do with the extra money.
But with storm clouds looming over the economy and rising interest rates slashing Canadian budgets, treat yourself or have more money ready just in case. When do you
Here are some things personal finance experts say you should consider when deciding how to use your tax return.
(Oh, and if you haven’t paid those taxes yet, just a quick reminder that the deadline for individuals to process them is Monday, May 1st.)
Review your savings goals
When tax returns start rolling into your account, it’s a good time to reflect on some of the goals you set at the beginning of the year, says Toronto-based author Sandy Yung. money master.
Many Canadians have been encouraged to normalize their finances in January, but some of that momentum may have fizzled out months later, she said.
A sudden influx of cash may be just what it takes to get your priorities off the ground, argues Yong.
“It’s important to prioritize what you think is most important and how a tax refund can help improve your financial situation.”
Many Canadians may qualify for a tax refund by contributing to a Registered Retirement Savings Plan (RRSP). This reduces your taxable income for the previous year.
Rubina Ahmed-Haq, Personal Finance Expert, worth it The Corus Entertainment radio network says the most efficient way to use that extra cash is to put it back into RRSP to maximize your long-term savings goals.
Doing so will pay less in taxes next year and you can invest or save that money for retirement.
Ahmed-Haq said: “But really, it’s the smartest thing to do and you can start saving for retirement for 2023.”
Yong says one way parents can keep momentum on their tax returns is through donations to registered Education Savings Plans (RESPs).
If you put at least $2,500 into the account annually, the federal government will donate an additional $500 through the Canada Education Savings Grant to top up your child’s education savings, she said.
Paying off debt vs. increasing emergency savings
One new issue that Canadians may want to consider on their tax returns this year, compared to last year, is the sharp rise in interest rates over the past year.
The Bank of Canada has raised borrowing costs in one of the fastest tightening cycles in history to keep inflation in check. This has made interest costs on certain types of debt much higher than they were a year ago. Bank policy rates were near record lows.
High-interest credit card debt, typically above 20%, is particularly damaging to Canadian finances and can become an uncontrollable “snowball,” Yong said.
Given the skyrocketing amount Canadians are currently paying on high-interest debt such as credit cards and unsecured lines of credit, paying off loans is also a fruitful way to maximize the impact of tax refunds. can be, Ahmed Haq says.
“If you get that refund and pay off your debt, your money will go a long way,” she says.
If you haven’t yet paid off your variable-rate mortgage, many Canadian homeowners are also facing increased monthly payments on their fixed-rate loans as their contract renewals are approaching.
Yong said there could be an opportunity to pay off the mortgage in full, assuming the terms of the loan allow it to be repaid without significant penalties. By doing so, the principal of the loan is repaid, thus reducing the impact of increased interest on your payments.
Experts keep an eye on the horizon to make sure they are prepared for layoffs and other hits to income amid 2023 recession fears after debt and long-term investments are worked out He says it’s worth keeping.
“Just having some cushion of cash always helps a lot if you lose your job,” says Yong.
Three to six months’ worth of emergency funds should be kept in a readily accessible, high-interest savings account. You are not tied to risky investments, tangible assets, or hard-to-withdraw accounts. says Ahmed Haq.
But seriously, can I handle myself?
Once all your immediate needs have been met and your long-term planning demands met, it’s time to ask the question — can you treat yourself?
The 2023 tax season begins when inflation finally begins to ease in Canadian households after hitting a 41-year high last year. As such, it came after years of hardship during the COVID-19 pandemic.
Even if Canadians are tired of having their hard earned income siphoned off at gas stations and grocery stores and suddenly find themselves with a few unexpected expenses, spend it on something for themselves. Yong says there’s no reason to be offended.
“I think it’s also very important to be able to enjoy all the hard work and the fruits of your labor,” she says.
Ahmed-Haq says there may be a legitimate psychological component to using tax refunds for diversion. It works.
If you’re looking to treat yourself, Ahmed Haq suggests spending your money on limited things, like a little vacation or a nice dinner.
“I wouldn’t use that money to buy a whole new wardrobe, or a brand new car, or anything else that would take a toll on my finances,” she says.
Are affidavits really worth it?
While receiving tax returns in bulk is exciting for Canadians, Ahmed-Haq actually argues that most Canadians should plan their taxes to avoid getting a significant amount of returns. I’m here.
In reality, your tax refund reflects that you have paid too much income tax to your CRA over the course of the year.
These may be for good reasons such as RRSP deductions, but Ahmed-Haq said there could be accounting discrepancies in the way employers record salaries, or employers’ This can also happen because you may be paying yourself a lot more in part of your expenses throughout the year.
“A lot of Canadians feel like they’re getting free money when they get that refund. It’s like a gift from the government,” she says.
“They’ve had that money since December until now and you paid too much income tax, so they’re paying you back now.”
When the government gives you back that money, it means they’re holding your money like an interest-free loan, says Ahmed-Haq.
It may not be fun to have some debt when you pay your taxes, but it’s actually better because it means you can keep and deliver more income even after you settle with a CRA. She claims to be in position. It works for you the way you need it throughout the year.
“It’s a much better situation than getting a big refund.”
