Saving money is kind of like eating a healthy diet.
You know you should do more of it, but it’s hard to resist making spur-of-the-moment choices that make you happier now but worse off later. A tax refund marks a great chance to set yourself in a better position for the future. As tax season approaches, many people begin to anticipate receiving their tax return. For some, it may be a small windfall, while for others, it may represent a significant amount of money.
Word to the wise: Don’t wait until tax time to educate yourself.
Childcare expenses and family benefits:
You need to file your taxes every year to continue receiving family benefits like the GST/HST Credit and the Canada Child Benefit (CCB). If you’re a family with a low to a modest income, the GST/HST credit can offset a portion or all the sales tax you pay, including the tax paid on a new or used car.
The CCB is a tax-free monthly payment that helps cover the costs of raising children under the age of 18. It currently offers up to $569 per month for each child under age 6 and up to $480 per month for each child between the ages of 6 to 17.
Registered Retirement Savings Plan (RRSP) contributions:
Contributing to your RRSP is an excellent way to lower your tax bill and get a larger tax return. Your contribution limit is 18% of your earned income from the last tax year, plus any unused amounts from previous years. You can find your contribution limit in your CRA My Account or on your last notice of assessment.
A good rule of thumb is to maximize your RRSP if you make over $50,000, so you can benefit from the highest amount of tax savings.
Interest paid on student loans:
If you or your child is studying at a post-secondary institution, you can deduct the interest paid on a student loan if you received the loan under the Canada Student Loans Act, Canada Student Financial Assistance Act, Apprentice Loans Act, or similar laws in your province or territory. This deduction does not apply to something like a personal loan or line of credit. Apply this deduction if you owe taxes. Otherwise, it’s better to carry it forward.
Your student loan interest claim is a non-refundable tax credit. It can only be used to lower your tax bill and cannot be used to receive a tax refund. Since you can carry forward student loan interest for up to five years, it might be wise to save your claim for a year when you owe a lot of tax.
Medical expenses:
The CRA permits you to deduct a range of medical expenses as non-refundable tax credits, including the cost of orthopaedic shoes, laser eye surgery, dental cleanings, and private insurance premiums.
Union/professional dues:
Most professional association fees and union fees can reduce your taxable income. Examples of eligible expenses include trade union membership fees, professional board dues required under provincial or territorial law, and insurance premiums related to your profession.
Vehicle expenses:
You might be eligible to deduct some vehicle costs if you use your car for work. You could be able to deduct vehicle-related costs like gas, insurance, license and registration fees, maintenance and repairs, leasing charges, and interest on loans used to buy a car if you’re self-employed.
Depending on whether you lease or buy your car, there are various deductions. Capital cost allowance (CCA), a deduction used over a number of years based on the depreciation percentage, is available if you purchase (until the car gets old and has no more value). The amount of CCA you can claim for business use is capped at certain vehicle prices.
Under certain conditions, salaried employees may also be eligible for automobile expenditure deductions. The complete eligibility requirements are available here. Remember that travel time between your home and place of employment is not deductible.
Here are some smart financial moves you can make to get the most out of your tax return.
Pay off high-interest debt.
Using your tax return to pay off high-interest debt, such as credit card debt or personal loans, might be a wise financial decision. You can save a lot of money in interest payments over time and free up your finances to concentrate on other financial goals by paying off this debt with your tax return.
Build an emergency fund.
Now is a perfect moment to build an emergency fund if you don’t already have one. A safety net called an emergency fund can assist you in paying for unforeseen costs like car repairs, medical bills, or lost income. A wise financial decision that can provide you peace of mind and prevent you from getting on debt in the event of an unforeseen need is using your tax refund to kickstart your emergency fund.
Make a large purchase or investment.
In conclusion, using the information on your tax return might help you make the most of your financial condition. Think about utilizing money to make a significant purchase or investment, pay off debt, create an emergency fund, invest in your retirement, or donate to a good cause.