Tax Season 2024: Investing or Spending? How to Make the Most of Your Tax Refund
As tax season unfolds, many Canadians anticipating a refund may ponder how best to utilize that government cheque.
Statistics Canada reports that from February 8 to March 18, over 3.9 million Canadians received income tax refunds, averaging $2,134 each. With this additional $2,000 in hand, the question arises: should one indulge in that coveted new TV or exercise financial prudence?
Ryan Gubic, a certified financial planner and MRG Wealth Management founder, suggests viewing the tax refund as a catalyst for jumpstarting financial goals in 2024.
“The tax return sometimes can be a great catalyst to think about the overall plan and all the different components of their financial life,” Gubic shared in an interview with Yahoo Finance Canada.
Determining the optimal course of action for individuals with substantial refunds depends largely on their unique financial aspirations. Gubic emphasizes aligning a portion of the refund with these objectives.
“Go back to your plan and go back to your vision,” Gubic advises. “When I talk about vision with Canadians, it’s what are you working towards what’s success looks like for you.”
Wendy Brookhouse, a certified financial planner and CEO of Black Star Wealth, recommends allocating the refund across various accounts, prioritizing debt repayment. Considering the surge in consumer debt in Canada, settling outstanding debts is paramount. Brookhouse suggests then bolstering emergency reserves to weather unforeseen financial storms.
“Next, she would add money to the First Home Savings Account (FHSA) for those looking to buy their first home, and into a Registered Retirement Savings Plan (RRSP) for those already with a home or not in the housing market,” Brookhouse adds.
Contributions to the FHSA and RRSP are tax-deductible, potentially securing future tax returns. Additionally, Brookhouse suggests considering contributions to a Tax-Free Savings Account (TFSA) for tax-free growth and accessible funds.
While the temptation to splurge with the refund may be strong, Brookhouse advises restraint unless high-interest debt is cleared, and emergency funds are robust.
Gubic suggests that while using the refund for necessary purchases like home renovations is reasonable, planning for such expenses beforehand is preferable to relying solely on tax returns.
For those receiving substantial refunds, Brookhouse recommends adjusting tax deductions with employers to avoid large returns in subsequent years.
Ultimately, Brookhouse advocates for keeping more income throughout the year rather than receiving a lump sum as a refund, enabling consistent efforts towards debt reduction and financial stability.
