TORONTO, ONTARIO--(Marketwired - May 5, 2014) - With just hours to go before the deadline to file 2013 income taxes, BMO Nesbitt Burns has released a study revealing that 37 per cent of Canadians who expect to receive a refund this year will use it to cover household bills and/or reduce their overall debt load. Last year, according to the Canada Revenue Agency, the average individual tax refund received was $1,641.
Canadians also plan to use their tax refunds (or a portion of them) to:
- Save or invest (28 per cent)
- Travel and/or purchase leisure items (13 per cent)
- Do home renovations (11 per cent)
- Pay down their mortgage (Nine per cent)
- Donate to charitable causes (Three per cent)
"It's reassuring to know that, of those expecting a tax refund, many will use the money to pay down personal debt or save or invest for the future," said John Waters, Vice-President, Head of Tax & Estate Planning, BMO Nesbitt Burns. "While everyone's personal financial situation is different, increasing your overall savings and lowering your debt is generally considered wise money management; it's important that Canadians make it a priority."
BMO Nesbitt Burns offers the following tips on how to use your tax refund:
Contribute to Your RRSP
Save for retirement by using a portion of the money towards your RRSP. This could be done by increasing your contributions or making a payment now instead of waiting until the deadline next year, allowing you to benefit from almost an extra year of tax-deferred growth.
Manage Credit Card Debt
Pay down credit card debt, beginning with those that carry the highest rate. Consider using a card with a low interest rate for purchases and try to pay more than the minimum payment due, if not the whole balance in full, every month.
Make a Lump Sum Mortgage Payment
If you have a mortgage, consider using your tax refund to make a lump sum payment. Applied directly to your principal, a lump sum payment could save you significant dollars in interest costs over the life of the mortgage.
Rainy Day Fund
Having some money set aside in case of emergencies is not only a good financial strategy, but it will also help you sleep easier at night. A good rule of thumb is to have at least three months' salary saved as a safety net. If you feel your job might be at risk or if you are self-employed, six months might be a better cushion. Your emergency fund should be easily accessible; it should be kept separate from your day-to-day operating account, perhaps in a high-interest savings account.
Top-up your savings
If you are not carrying any extra debt, then make your refund work for you. Contributing to a Tax-Free Savings Account (TFSA) can help you grow your money tax-free.
Save for Education
An education can be an expensive thing. Contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children's future. Consider opening an RESP using your income tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. Maximize your contributions every year and you could earn up to $7,200 in lifetime grants for every child.
The survey was conducted by Pollara between March 14th and March 17th, 2014 with an online sample of 1,007 Canadians. The margin of error for a probability sample of this size is ± 3.1%, 19 times out of 20.
For more information on tax efficient investing and planning locate a BMO Nesbitt Burns Investment Advisor at www.bmo.com/nesbittburns.
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