CALGARY, AB, Apr 12, 2014/ Troy Media/ – If numbers from past years are any indication, about 17,000,000 Canadians will get a tax refund this year. If you are one of them, how will you spend yours?
The Canada Revenue Agency (CRA) tells us that the average tax refund for the 2012 tax year was approximately $1,620. While that’s not as much as the more than whopping $3,000.00 USA Today predicts Americans will get this year, it’s a sizeable chunk of change.
You may be tempted to think of your tax refund as ‘found money’– a mini-windfall. Don’t.
By definition, a refund reimburses you for money or expenses you are entitled to. In other words, your tax refund is money the government owes you.
Wondering how the government can owe you money? Well, maybe your employer took too much money off your weekly paycheque. You may also have lowered your tax bill by taking advantage of deductions for your self-employment income or by purchasing an RRSP, or maybe you are the beneficiary of an income redistribution program like the Child Tax Credit.
No matter what stage in life you are at, you probably qualify for at least one non-refundable tax credit. For example, if you just bought your first home, you can lower your tax bill by $750 through the First Time Home Buyers’ Tax Credits.
Many non-refundable tax credits listed on the Canada Revenue Agency website reward you for civic responsibility. The first-time donor’s super credit, gives first-time donors to registered charities a break on their tax bill, and the Public Transit Tax Credit lets public transit riders write off the cost of their monthly bus passes. Volunteer firefighters, who serve at least 200 hours per year, receive a $3,000 tax break in recognition of their service to their communities.
Family responsibilities are also the inspiration for tax breaks, such as the Family Caregiver Tax Credit which assists caregivers of ‘infirm’ family members. Parents enrolling their kids to participate in fitness and arts programming can claim the Children’s Fitness Tax Credit and the Children’s Arts Tax Credits. Senior couples can reduce their tax bill through pension income splitting.
Students can claim textbooks, tuition and education tax credits on their returns while people working in the trades can deduct a portion of what they spend purchasing tools.
No matter what tax credit you qualify for, it is there to help you bump up your income while you fulfill your family, civic, and work responsibilities.
Sure, it’s tempting to go shopping when your tax refund appears in your bank account, but here’s a better idea. Why not apply the same principals in managing a tax refund as you would to managing your other income?
Pay a bill:
Use at least 50 per cent of your tax return to pay at least one bill. If you have high interest unsecured debt, you might want to put most of your refund money toward getting rid of that debt.
Top up your emergency savings:
If you want to gain long-term benefits from your tax refund, use it to build a stable future. Why not put at least 20 per cent of your refund into your emergency fund or savings account?
Use it to buy something you really want:
Use 20 to 25 per cent of your refund to reward yourself. Take out your wish list. If this refund gives you enough money to pay for something on it, buy it now. If not, put your ‘reward’ money into the fund you are using to save toward that dream: whether it’s a trip, a new television, furniture, clothing, or a concert you want to see.
If you are a regular giver to a charity or church, use 5 to 10 per cent of your refund to support the cause.
In a nutshell, choosing the same ‘divide and conquer’ strategy to manage your tax refund as you use to manage you weekly paycheque moves you toward a secure financial future.
Jane Harris-Zsovan offers her readers practical money advice for the real world.
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