With springtime comes tax time, prompting some Canadians to wonder: What should I do with my tax refund?

While a variety of options exist, some people think tax refunds are extra money, and they ultimately spend the cash on vacations or splurge items. While those choices aren’t inherently bad ones, the decisions are typically made without much thought about whether those funds could have been put to better use.

For many people, tax planning largely centres on the up-front aspect: reducing taxes and boosting refunds through tax-advantaged strategies. However, clients often overlook that tax refunds can also be used strategically to improve their financial health.

Read: Your clients’ top tax questions answered

A chance to set the course

Many of your clients have received their 2015 refunds. For advisors, refund time is an ideal opportunity to connect with clients, conduct a review and implement new strategies. Those can be for savings, investments, risk management, or the overall plan. This approach helps clients understand how to add value to their tax-return dollars.

There’s still uncertainty among some Canadians as to which investment strategies are most suitable to their situations. Since the decision between RRSPs, TFSAs, and non-registered savings is largely based on a client’s marginal tax rate now versus in retirement, this is where an advisor becomes an important resource for determining the ideal strategy.

Read: Who will benefit from new family tax regime?

Education savings

While clients have tax refunds in hand, remind them that annual contributions made to an RESP are actually matched at 20% (to a maximum of $500 on a $2,500 contribution) through the Canada Education Savings Grant. Tell your clients that the 20% match is like getting a 20% return on an investment – without the risk. Explaining that will reinforce how refund dollars can grow.

Read: Are wealthy clients affected by further changes to top tax rate?

Reducing Debt

With household debt levels in Canada topping that of all the G7 countries, reducing non-deductible debt from credit cards, personal-use car loans, personal lines of credit, and mortgages should be a priority for many people. Help your clients read up on the fine print of their loans, and keep an eye out for special payment opportunities. Some mortgages, for instance, give homeowners the chance to put extra money directly toward the principal. A refund is an opportunity to take advantage of such clauses. In general, emphasize that the higher the interest rate on the loan, the more beneficial it is to pay down the debt. Clients really can’t go wrong with this strategy for putting tax-return dollars into action.

Read: Pay mortgage or save? Help young homebuyers decide

Emergency Fund

Life is filled with the unexpected. Those who view a tax refund as extra money they wouldn’t otherwise plan for could use it to build a safety net for unforeseen occurrences, whether medical, personal, or professional. Putting refund dollars aside can give clients a great sense of comfort and satisfaction.

Regardless of a client’s individual circumstances and goals, tax planning should be a full-circle process. Decisions shouldn’t end at tax-saving strategies and filing returns. By following through to the refund, advisors can provide clients with not only the satisfaction of a CRA cheque in the mail, but the empowerment of turning that refund into something more valuable.

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