June 6: Some smart things to do with that tax refund

June 6, 2024

Ah, spring. Time to drag the golf clubs back up to the garage, to pump up the bike tires, and start getting the garden going. And, for many of us, time to get a nice tax refund cheque (or, more likely, a refund deposit).

Save with SPP wondered what people do with the refunds. Let’s take a look around and find out!

According to Fiona Campbell, writing for Forbes Advisor, tax refunds “are a sweet perk of filing your income tax return – and the good news is that most Canadians get one.” In fact, she notes, 58 per cent of filers got a refund in 2021, and the refund averaged just over $2,000.

This year, the average refund is more like $2,100 and change, she continues.

Campbell’s ideas on how to spend the refund don’t include “concert tickets, vacations, or designer clothes,” but are intended to “put you ahead financially in the long run and give you peace of mind instead.”

First (no surprise) is paying down debt. “If you carry a credit card balance, or only make the minimum payments, you’ll end up paying interest each month—and with APRs averaging 21 per cent, that can add up quickly,” she warns. The average Canadian owes more than $4,000 in credit card debt, she adds. If you don’t have credit card debt, you may have other loans or credit lines that can use a hand, she continues.

Next comes the mortgage. Campbell suggests making a prepayment on your mortgage, either as a lump sum or as an extra amount each payment. “If you don’t have other outstanding debt with higher interest rates, prepaying your mortgage can be a smart way to use your tax refund as it goes directly to the principal portion of your loan,” she notes.

Other ideas from Forbes Advisor include topping up your registered retirement savings plan (RRSP) or Tax Free Savings Account (TFSA), starting or adding to your emergency fund, or saving for a child’s education via a registered education savings plan (RESP).

The folks at the Nerd Wallet blog have a few more ideas.

“A tax return can be a great way to fund home repairs and upgrades. Maybe you have a big project to tackle, such as redoing a bathroom or renovating your kitchen. Spending your money on home upgrades is an investment that could shrink your home insurance bill and add value to your property in a way that pays off handsomely when it comes time to sell,” the blog advises.

Another idea, the blog continues, is to “invest in yourself.”

“While tackling debt, saving for the future and improving your home are all worthwhile uses for your tax-season windfall, don’t forget that you are also a smart investment. Maybe you’d like to start a side hustle, treat yourself to a monthly massage, or complete a professional certification. Though they might not earn compound interest, these types of investments can yield a sense of wellbeing and set you up for future success in a way that’s truly priceless,” the blog suggests.

Global News covers many of the same ideas, concluding that it really boils down to either paying down debt or adding to savings (or both).

The broadcaster suggests targeting credit card debt first.

“Credit card debt, which typically carries high interest rates at upwards of 20 per cent, can be particularly damaging to Canadians’ finances and “snowball” out of control, states financial author Sandy Yong in the article.

However, Yong says, even though saving and paying off debt are seen as the most sensible things to do with a refund, having a little fun is never out of the question. There’s no reason, she tells Global, to “feel bad about spending it on something for yourself.”

If you’re planning to use some or all of your tax return on your retirement savings, why not consider the Saskatchewan Pension Plan. SPP works just like an RRSP – the contributions you make are tax-deductible, which may help you get a refund down the road. And, way further down that road, the contributions you make to SPP – having been professionally invested, at a low fee, in a pooled fund – will grow into a future income stream for the retired you. A gift that keeps giving, as they say.

Check out SPP today!

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Forbes Advisor, Global news, Nerd Wallet, Tax Return

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