By Remitbee - Apr 5, 2022
It is usual for people to get excited once they find out that they will receive a tax refund. After all, you will have extra cash you can spend, invest, or save, depending on your needs. Typically, you can receive your tax refund within two weeks after you file online or eight weeks after you file a paper in return. However, other situations may result in a longer wait time before the CRA sends you your tax refund.
However, don’t get too excited because tax refunds are not positive, contrary to popular belief. A tax refund is a result of overpaying the government. The higher your refund is the more interest, investment, and spending opportunities you lost. So, it is best to know how you can minimize your tax refunds to maintain your purchasing power.
The fastest and easiest way to check how much your tax refund is by using an online tax calculator. You can also seek the help of a certified accountant, or you may compute your tax refund on paper. If you choose to calculate it yourself, here are the variables you need:
To compute the values above and our tax refund, follow these equations:
Total income - Total deduction = Tax payable
Tax payable x average tax rate = Tax owed
Total tax owed - (sum of all credits x 0.15) = Total tax payable
Total tax payable - tax already paid = Tax refund
Let’s say you will receive a decent amount of tax return this year. While it is very tempting to use it to make any wanted purchases, you’d be thanking yourself in the future when you utilize your tax refund in a smart, sensible way. Without further ado, here are different ways you can save, spend, or invest your tax refund this year:
To achieve financial freedom, it is best to use a portion of, or your entire tax refund to pay off any major loans you have. When you lessen your debt, you also reduce the interest you pay and your remaining balance, saving more in the long run.
Are you thinking of buying your own home in Canada? Make that dream closer to reality by using your tax refund to add to the down payment you are saving for. If you already own a home in Canada, you may use your tax refund money for any repairs or home improvements to give your home a major upgrade to make it safer and more comfortable to live in. Making improvements to your home is also a smart move because you are adding to the total market value of your home, so if you wish to resell your home in the future, you sell it at a higher price than you originally bought it.
If you are a parent, your kids’ future is sure to be your top priority. With tuition fees continuing to rise, having an education fund for your kids will ensure that they will get a quality education throughout their lives. So, if you receive your tax refund this year, you may consider opening up a Registered Education Savings Plan (RESP) for your kids. If you have one, you can add your tax refund to the value of this investment. Since this fund is tax-sheltered, the easier and quicker it is for you to grow this investment.
For singles or couples who do not have kids yet, you can use your tax return to open up or fund your TFSA to achieve your short- and long-term financial goals. The money you contribute to your TFSA and the income it incurs are all tax-free even when you withdraw it, so it is best to add to your TFSA until you reach the annual TFSA limit.
As much as you love your work, there will come a time when you will need and want to take a rest from working. If you want to retire early or make sure that your retirement years will be very comfortable and worry-free, it is best to use your tax refund to fund your RRSP.
Your RRSP fund won’t be taxed until you withdraw it, so growing this fund is not complicated. When you contribute to your RRSP, you can also lower your annual taxable income in the next year because contributions here are tax-deductible.
Of course, you can also use a portion of your tax refund for something you want as a reward for your hard work. You can use it to purchase something you’ve been saving up for or put it in your other savings or investments aside from your TFSA and RRSP.
If you are fortunate enough to have a decent job, a roof over your head, enough clothing, and eating complete meals in a day, consider yourself blessed and financially stable. To give back and appreciate what you have, why not donate a portion of your tax refund to charities and other people in need to help make at least a slight difference in their lives? When you donate, you can also claim your charitable tax credits when you file your income tax return the following year.
If you want to share your tax refund with your family and others who are in need living outside Canada, send money using RemitBee. We give you the best rates so you can maximize your money. Best of all, if you send at least $500 in one transaction, we won’t charge you any remittance fees!