What to do when you are expecting…a tax refund

February 01, 2024 | Portfolio Advisor – Winter 2024


What to do when you are expecting…a tax refund

Five smart ways to maximize your refund this tax season 

If you are like the more than 29 million individuals and 1.3 million businesses expected to file taxes this year, you may also be one of the almost 18 million who are likely to receive a tax refund for their efforts. According to the latest figures, that’s the number of filers that the Canada Revenue Agency (CRA) sent back $37.3 billion to between February 2022 and January 2023, with the average refund coming in at $2,093.  

If you are one of millions of Canadians expecting a refund after this tax season, it can be tempting to use these “found” funds for something fun like a vacation, or for something less fun but certainly important like making repairs or renos to your home. But depending upon your financial goals and how on track you are to achieving them, you may want to consider the following five ideas to deploy your tax refund: 

1. Education savings: If you plan to assist your children or grandchildren with their education costs, you may want to use your income tax refund to contribute to a Registered Education Savings Plan (RESP). The first $2,500 of RESP contributions attracts a federal government grant of $500 to $600, depending on your family income. For more information on education funding, click here.  

2. Reduce non-deductible debt: Consider paying down outstanding non-deductible debt that’s subject to a high interest rate. Non-deductible debt includes credit card debt, a personal-use car loan, a line of credit used for personal purposes or the mortgage on your home. As the interest on a loan used for personal purposes is not deductible for income tax purposes, you’re paying the interest on the loan with after-tax dollars.

3. Contribute to your RRSP or non-registered savings: Save your income tax refund in a Registered Retirement Savings Plan (RRSP) or a non-registered account, and continue to grow and compound your wealth over time within your portfolio. Whether you should save your refund in a RRSP or a non-registered account depends on your specific circumstances and several financial assumptions. Here’s some general guidance that may help with this decision: 

  • If you expect your marginal tax rate in retirement to be the same or lower than your marginal tax rate today, consider contributing to your RRSP. 
  • If you want to invest in securities that produce Canadian-source dividends and capital gains and you’re in a low tax bracket today but expect to be in a higher tax bracket in retirement, you’re generally better off saving outside an RRSP. 

4. Contribute to your TFSA: The Tax-Free Savings Account (TFSA) provides a further option for investing your tax refund. You can contribute to your TFSA each year up to the annual limit ($7,000 in 2024, and $95,000 maximum lifetime amount for eligible contributors). If you haven’t maximized your contributions to a TFSA in previous tax years, the unused contribution room is added to your TFSA contribution room. All growth, income and withdrawals are tax free. To learn more, click here

5. Emergency fund: A fundamental financial planning strategy is to set aside some money for unexpected expenses or a job loss. In general, consider keeping approximately three to six months’ worth of living expenses within a liquid emergency fund. If you don’t have an adequate emergency fund, you may want to direct some or all of your tax refund towards creating one. 

If you do receive a refund back from the government after this coming tax season, contact us to discuss how we can help you make the right decisions to maximize the funds to best achieve your goals.

This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under license.


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