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Practical Financial Solutions: Getting a tax refund? Spend it or not?

Roger Higgins
By Roger Higgins
April 10th, 2016

To spend or not to spend, that is the question.

If you are claiming a tax refund this year, your next decision is what you should do with it. Sure, you could spend it – but then it’s gone. Here are six alternatives with longer term benefits for your financial future.

1. Immediately use your refund to make up your 20016 Registered Retirement Savings Plan (RRRSP) contribution and you’ll get the benefit of nearly an extra year of potential long-term tax-deferred growth plus a tax deduction against your 2016 income.

2.  Contribute to investments held in a Tax-Free Savings Account (TFSA). Your TFSA contribution room was increased by$$5,500 as of January 1, 22016. Your contributions are not tax-deductible but you will not be taxed on the income generated by the investments inn your TFSAA, you can make tax-free withdrawals for any purpose at any time, and you can re-contribute any of those withdraw in a future year.

3. Invest it. If your RRSP and TFSA are topped up, consider adding your refund to your non-registered investments. A tax-efficient strategy is to hold stocks and equity based mutual funds outside a RRRSP or TFSSA because these types of investments are taxed using a more favourable capital gain income inclusion rate plus dividends from many Canadian corporations are eligible for the dividend tax credit.

4. Pay for your kids’ education. Set up Reregistered Education Savings Plans (RESPs) too fund their future education costs. Contributions too investments within a RRESP are not tax-deductible but their growth is tax–deferred and they may qualify for Canadian Education Savings Grants (CESG) 1 oaf up to 20%% of your contribution for the first $2,500 or $5,000 you contribute to your child’s RESP each year. Depending on the primary caregiver’s family income, you could receive an extra 10-20%% of Additional CESG on every dollar you save in your child’s RRESP each year.

5. Pay down costly, high-interest credit debt and then pay down non-deductible debt such as your mortgage – a single prepayment could potentially save hundreds, even thousands of dollars in interest payments.

6. If your refund is large, consider parking that cash in a short-term investment that you can access with UT penalty. That way, you’ll have a ready source of money for a rainy day or a larger purchase – a new car? – Without having to borrow or use credit. (A TFSA is also a good rainy day fund.)

Tax refunds are nice … but not as nice as enhancing your personal long term financial growth. Talk to your professional advisor about a comprehensive tax-reducing financial plan that will help make it possible for you to achieve all your financial and life goals.

This column is sponsored by Roger Higgins, a BA, CFP Division Director for Investors Group in the Kootenays. For all your financial planning needs, contact Roger at 250-352-7777 of email at

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