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How to Make the Most of Your Tax Refund

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The majority of tax planning is quite simple. If you own your home and make contributions to an RRSP, TFSA, and RESP, you are already benefiting from the finest tax sheltering. However, the main concern for everyone’s how to increase tax refunds in Canada.

Reduce your debt

With interest rates rising, now could be a good time to look into paying off obligations you may have, such as a mortgage, HELOC, or personal line of credit. By doing so, you might prevent your loan carrying costs from rising before the additional payments start to reduce your available investment funds. You might also be able to free up extra money in your budget by paying off any high-interest debt, such as any unpaid credit card bills.

Creating or maintaining an emergency reserve

We have learned from the pandemic how crucial it is to prepare for the unexpected and how volatile markets can be. When disaster strikes, having a few months’ worth of expenses saved up in an emergency fund can keep you from having to sell investments at the drop of a hat, which isn’t ideal if markets are down and you have to sell at a loss.

Put money into a registered account.

Consider depositing your tax return in a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or Registered Education Savings Plan (RESP), each of which offers certain tax benefits, if you haven’t already used up all of your allowed contribution allowances. For instance, a TFSA exempts your capital gains and investment income from taxes. You receive a tax deduction for an RRSP contribution that you may use toward your taxes for the following year. And if you choose an RESP, the government will provide a grant in the amount of 20%. 

Improve the energy efficiency of your house.

Your gas, electricity, or oil cost could be reduced if you use your tax refund to replace old, inefficient appliances, purchase a more energy-efficient furnace, and install better insulation, new windows, and doors that stop air leakage. Over time, those savings could find a place in your investing. 

Encourage a cause

In these trying circumstances, you might want to think about giving your tax refund to a deserving organization if one of your financial goals is to help others. Any contributions you make to a recognized charity may be deducted from your 2022 taxable income as a charitable tax credit.

Key points 

Use the strategies listed above to maximize your tax refund. With interest rates on the rise, this could be a good time to think about paying off debts. Paying off any high-interest debt may also enable you to free up additional funds in your spending plan. You might want to consider donating your tax refund to a worthy cause in these tough times. Always do your research or consult an expert for assistance if you run into problems.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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