More than half of Canadians who will be receiving a tax refund this year will use it either to invest or pay down household debt, according to a BMO Nesbitt Burns study.
Eight-in-ten Canadians (79%) expect to receive a tax refund this year. By looking at the returns assessed as of April 18, 2013, the Canada Revenue Agency (CRA) has received more than 13.1 million tax returns, 86% of which were filed electronically. Of those, almost 8.8 million returns were eligible for refunds. The CRA has issued almost $14 billion in tax refunds. To date, the average individual tax refund has been $1,585.
Many of those anticipating a refund this year already have plans for their money. According to the study, they intend to:
- Pay household bills, credit card balances, mortgages and other debt (37%)
- Save the money or invest it in a Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP) or Tax-Free Savings Account (TFSA) (20%)
- Spend it on travel, leisure or luxury goods (10%)
- Conduct home renovations (7%)
"It's encouraging to see so many Canadians invest their tax refund money or use it to lower their debt load," said. "While it may be tempting to spend the money on a trip or a flat screen TV, paying off debt or investing for the future will be more beneficial in the long term."
Canadians should consider tax planning a year-round activity to ensure they take advantage of all eligible tax credits and deductions, including pension income splitting, charitable donations, disability credits and monthly transit passes, says John Waters, vice president, head of tax and estate planning, Wealth Planning Group, BMO Nesbitt Burns.
The study also examined Canadians' thoughts on their Notice of Assessment — the form CRA sends after reviewing a person's taxes to notify of corrections and whether they will receive a refund or have a balance owing. The majority of Canadians (82%) are satisfied that their Notice of Assessment reflects what they calculated it to be when they filed their taxes, while 8% find the CRA's calculation to be a pleasant surprise.
Tips on how to make the most of a tax refund:
- Pay down RRSPs loan or make 2013 RRSP contribution
- Manage credit card debt
- Make a lump sum mortgage payment
- Top up TFSA savings
- Contribute to RESP
- Donate to charity