Smart moves: How to turn your tax refund into long-term financial gains

Canadians' tax refund plans amid mounting debt

For many Canadians, this year’s tax refund isn’t a bonus, it’s a lifeline. With household debt levels reaching what experts are calling “staggering” highs, according to Global News, a growing number of people are depending on their refunds to catch up financially.

Global News reported that nearly half (47%) of Canadians expect to receive a tax refund this year. And of those, 55% plan to use the money to pay off debt. That’s no surprise considering that Canada’s household debt now exceeds $2.9 trillion, with an average non-mortgage debt load of around $21,000 per person.

Maybe you don't want to put it on your debt, though. Maybe you may feel like it's a bonus and want to treat yourself a little, something Clay Jarvis, financial expert and spokesperson at NerdWallet Canada told Global News is something to do mindfully, if at all.

“I would just encourage people not to blow through their refund even if it’s higher than you expected and it does feel like a bonus — it is not,” he told Global.

“It’s your money, so spend it in a responsible way that you would have done with it if it had never been taken from you in the first place.”

What is the best way to allocate the funds the government has returned to you? It's not 'free' money. It's your money and always was. So, what should you do with it now that it's back in your bank account?

Here are some practical ideas to make your tax return work for you today and into the future.

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Strategies for maximizing your tax refund

1. Prioritize high-interest debt

Using your refund to pay off high-interest debts, such as credit cards, can provide immediate financial relief. Reducing these debts not only decreases your monthly obligations but also saves money on interest in the long run.

2. Invest in registered accounts

Allocating your refund to Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs) can yield significant benefits. Contributions to RRSPs are tax-deductible, potentially increasing your refund next year, while TFSAs allow for tax-free growth of investments.

3. Build an emergency fund

Establishing or bolstering an emergency fund with your refund can provide a financial cushion for unexpected expenses. Aim to save three to six months' worth of living expenses to ensure stability during unforeseen circumstances.

4. Treat yourself responsibly

While it's important to address financial priorities, allocating a portion of your refund for personal enjoyment can be beneficial. Financial experts suggest spending on one-time experiences, like a mini-vacation or a special meal, rather than making significant purchases that could strain your finances.

The bottom line

In the face of economic challenges, making deliberate choices with your tax refund can enhance your financial well-being. Whether it's reducing debt, investing for the future or ensuring financial security through savings, each decision contributes to a more stable financial foundation. Remember, even small, strategic steps can lead to significant long-term benefits.

Sources

1. Global News: Canadians are banking on tax refunds amid ‘staggering’ debt (April 16, 2025)