Your credit cards
If there is a balance on your credit cards with high interest rates, you should use your tax refund to repay them as soon as possible (especially if the interest rates are over 10%). Of course, the same applies to lines of credit and consolidated debts loans.
Contribute to a RRSP
There are no two ways about it! A RRSP remains the most direct way to save on taxes… year after year. RRSP allow you to make savings during your working years to maintain your quality of life when you retire. By making individual and voluntary contributions directly into your account, your savings are tax-free. You can make one big contribution per year or provide weekly or monthly installments that coincide with your payroll.
Better yet, invest your refund in a new RRSP as soon as you receive it. You will be glad you did next spring!
You should consult your annual Notice of Assessment from the federal government to find your maximum contribution allowed based on your income.
Save in a TFSA
A TFSA is a tax-free savings account registered with the Canada Revenue Agency. It allows you to make tax-free savings, using your tax refund for example.
The revenues of your investments in a TFSA are not taxed and never will be, even if you withdraw. And even if you withdraw from your TFSA, you will regain your contribution rights for the following years. Any Canadian resident aged 18 or over can invest up to $5000 in a TFSA every year.
Invest in a RESP
If you are already contributing to a RRSP, why not invest in a RESP? What is a RESP? It is a savings program created by governments to help pay for the Superior Education of your children, grandchildren, family members or friends. It is an interesting investment because it is tax-free and the governments encourage you with a grant. It is worth considering!
Now that you have been reasonable and took care of your RRSP, RESP, TFSA and paid your credit cards and if some of your tax refund is unused, it is time to buy something you have been dreaming about for so long! We work so hard for our money and provide security for our little world that we should also keep some money and treat ourselves!