May 5th became the tax filing deadline this year because of an error at CRA. If you haven’t filed yet, you’ll risk having to pay a penalty. Hopefully you’ve already filed your personal income taxes and you’ve got your refund from the government in hand.
If that’s the case, now all that’s left is to decide how to make the most out of your new-found lump sum of cash. Consider one (or all) of these ways to make the most of your tax refund:
1. Think about the kids
If you have children an RESP is a great way to save for their education. The cost of attending a four-year college in Canada varies by program; the average cost of tuition is between $3,350 and $17,100 according to George Brown College in Toronto. That doesn’t even include the additional costs of housing and supplies.
Saving for your child’s education is a good investment – and the government agrees. When you contribute money into an RESP, the government contributes an additional 20% with the Canada Education Savings Grant. Yes that’s right! For every $100 you invest for your child, the government adds an extra $20 up to a maximum of $500 grant per year. What a great way to grow your savings faster!
2. Save for retirement
We all want to retire someday, right?! Paying yourself first and investing in your future is always a good idea. Contributing your tax refund into your personal – or spousal – RRSP is a tax efficient way to watch your retirement savings grow. It also helps save for your financial future and even possibly generate another tax refund next year.
Before contributing money into your RRSP check your latest Notice of Assessment from the Canada Revenue Agency to make sure you have available contribution room. Over contributions can lead to penalties and I’m sure you don’t want that.
3. Consider investing it tax free
If investing in an RESP or RRSP is not the right strategy for your finances you may want to invest your lump sum into a Tax Free Savings Account. All Canadian residents over the age of 18 can contribute up to $5500 each year into a TFSA. In fact, the 2015 budget increased the 2015 contribution limit to $10,000.
All of the gains (interest, dividends and capital gains) earned on the money you deposit into a TFSA are tax free. This means there are no tax deductions when you contribute money into the account, but at the same time there are no tax implications when you withdraw – everything is tax free.
A TFSA is a tax efficient way to save for any personal goal from a rainy day to a dream vacation as withdrawals are allowed at any time.
What are your plans for your tax refund?
Call us to find out how Dedicated Financial Solutions can help.
About: Jennifer Black is a Certified Financial Planner and Canadian Investment Manager at Dedicated Financial Solutions – an award-winning financial management services firm in Mississauga, Ontario. She is also the co-author of Managing Alone, a financial guide for individuals dealing with the difficulties of losing a spouse. Recently, Jennifer had the honour of being invited to sit on the Advisory Council for Manulife Securities. She has an inherent ability to understand clients’ needs, help them clarify their goals and develop portfolios to help them reach those goals quickly and efficiently.