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  • Writer's pictureAlisa Aragon-Lloyd

Use your tax return to your benefit

Updated: Apr 3


By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, March 5, 2024


We are in tax season and many people have already started planning on how they will use their tax refund. With so many things on the list, it can be a real challenge to spend money wisely, especially tax refunds, which may feel like free money. With the average Canadian receiving a tax refund of approximately $2,262, it is tempting to spend it on something fun. However, every astute financial planner, adviser, mortgage broker, or financial journalist will tell you that you should not aim for a large refund.


By definition, a tax return means you have given the government an interest-free loan. If you want to get less of a refund, you should reduce the amount of money the government withholds from your pay cheque. To do so, you can increase the number of exemptions you claim. It’s usually smarter to save the extra money all year long and earn interest for yourself.


While it is very tempting to use your tax refund on things such as a vacation, a down payment on a new car, or a big-screen TV, there are many other ways to generate future value and accelerate your progress toward financial freedom.


  • Contribute to your Registered Retirement Savings Plan (RRSP). Not only will you make that money tax free, but you can also use up to $35,000 of your RRSPs towards a down payment as a first-time homebuyer. As long as you put back 1/15 every year of the funds you withdraw, you will not pay taxes on that money.

  • Contribute to your Tax-Free Savings Account (TFSA). Here is another great opportunity to earn investment income, tax-free. Any interest, capital gains, or dividend income you earn within the account is not subject to tax.

  • Contribute to your Tax-Free First Time Home Savings. This savings account introduced last year allows you to save up to $8,000 per year, up to $40,000 in total, to put towards buying your first home.

  • Start saving for a down payment for an investment property. By choosing the right property, the rental revenue will cover your mortgage payments and your equity will increase month after month in addition to the forced appreciation of owning a property.

  • Make a lump-sum payment on your mortgage. This is a great opportunity to pay down your mortgage faster by making a lump-sum payment. You will reduce the amount you pay in interest, as your payment will go directly towards the outstanding principal. While your mortgage payments will remain the same, you will be closer to paying off your mortgage faster.

  • Invest in your personal or professional development. Take a course or attend a conference that will help advance your career or yourself. YOU will always be your best investment.

  • Do a home renovation. Investing strategically in your home by doing renovations will bring a higher return when it comes time to sell. It will significantly boost the value of the house and increase your net worth while transforming your living space into the dream home you have always wanted.

  • Pay down debt. Pay down credit cards or loans to relieve some of that financial stress. While putting money in savings is important, high-interest debt can counteract those efforts. By using your refund to lower your debt, you can start putting more money into savings.

  • Start a contingency fund. If you don’t already have one, start a contingency fund or add more money to the one you do have. It is recommended to have at least three months of your pay cheque saved. It can take a while to save, but your refund can help you get there. You will be glad to have that money available if something unexpected happens.

  • Start your own business. Have you been thinking of starting your own business? Your refund can help you jumpstart your business. A little extra cash is a great way to get your new venture moving in the right direction. As you generate more income, you can claim some small business tax deductions on your next year’s tax return.

  • Make a charitable contribution. Not only will you be helping a worthy cause, but you will also lower your tax bill next year.

  • Don’t forget to treat yourself. Remember to treat yourself when you make smart financial decisions. It will help you develop a positive relationship with money. Use a reasonable amount to treat yourself after you have already allocated the rest of the funds wisely.

Make your money work for you

Whatever you decide to do with your refund, keep in mind how hard you worked for that money, and make sure it’s working just as hard for you!


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