Contribute to your well-being with your tax refund
As soon as you’ve filed your tax return, you’ll find out whether you’re entitled to a tax refund. Have you thought about how you could use your refund if you get one? While it’s said that money can’t buy happiness, here’s how you can use it to contribute to your quality of life.
1. Pay off your high-interest debt
Debt can be either good or bad. For example, there’s usually no rush to pay off your mortgage if you have a great rate and your property appreciates in value year after year. On the other hand, high interest on an outstanding balance on your credit card, a personal loan or some car loans can be a real burden on your monthly budget. You could use your tax refund to pay off such debts more quickly and maybe even reduce your financial stress (in French only).
2. Set up an emergency fund
Sudden events such as job loss, a broken-down vehicle or emergency repairs to a home can become a source of both personal and financial anxiety. An emergency fund with the equivalent of 3 to 6 months of living expenses can help protect you from a temporary drop in income or unexpected expenditures. It can also help you avoid going into debt, since you wouldn’t need to use credit during this period. You may want to keep your emergency fund savings in a tax-free savings account (TFSA), since returns and withdrawals aren’t taxable.
3. Contribute to your RRSP (maybe more than once)!
If you have enough contribution room, why not get a head start on next year’s RRSP contributions by reinvesting your refund? You may get another tax refund next year, so part of your RRSP will fund itself in a way. By contributing earlier in the year, you’ll also benefit from a few months of additional returns. You’ll then have peace of mind knowing that you’re on the right track to achieve your retirement goals or buy a first home or condo with the Home Buyers’ Plan (HBP).
4. Use your TFSA to save for the future
Since you can use a TFSA to save tax-free and since withdrawals aren’t taxable, it’s a powerful tool for saving for your short- and medium-term goals, and maybe even for retirement. Before you contribute to your TFSA, check your available contribution room. Use your TFSA savings to upgrade your property (replace old windows, renovate the kitchen, set up a home office, etc.), make a major purchase (such as an electric vehicle) or take a well-deserved vacation.
Good to know: You can reinvest the money you withdraw from your TFSA, since withdrawals create contribution room for the following year.
When is the deadline to file your tax return?
In 2023, April 30, the deadline to comply with your tax obligations, falls on a Sunday. Revenu Québec and the Canada Revenue Agency have extended the deadline to Monday, May 1, 2023.
5. Take care of your health
If you’re satisfied with your personal financial situation, could other areas of your life benefit from an additional investment? Depending on your needs, you may want to consider using your tax refund to contribute to improving your physical or mental health. Here are some examples:
- Purchase a gym membership or high-quality equipment for a new sport.
- Increase your comfort with an ergonomic chair and an appropriate workstation for working from home.
- Contact a nutritionist to help you adopt new eating habits.
- If you have difficulty sleeping or anxiety, get support from a specialized therapist.
Listen to your body and mind to figure out what will help you feel good.
6. Invest in your well-being and your passions
Strategies such as learning to manage stress, finding ways to get organized on a daily basis or simply building resilience can be useful at work and at home. In addition, why not pursue a personal interest by taking a class involving music, painting, photography, dance, a sport or another inspiring activity?
7. Donate to a cause that’s important to you
Giving back to a charity that reflects your values can be a great source of joy—and tax benefits. Charitable donations are eligible for a non-refundable tax credit. If your donations total over $200, the tax credit rate becomes higher. For spouses, it may be more beneficial to group donations on the tax return of one spouse, so that only one of them claims the tax credit. Be sure to research the cause you want to support and how your money will be used.
Good to know: Donations can be carried forward to one of the next 5 taxation years.
Direct deposit: Simpler, more reliable and faster than a cheque
Whether you have a 2-, 3- or 4-digit tax refund, it would be a shame for the envelope containing your cheque to get lost on its way to you. Sign up for direct deposit so that your refund will be deposited into your account directly and more quickly.
Tax refunds often represent an extra inflow of money. Use the opportunity to improve your financial situation or invest in something that otherwise enriches your life.