While the majority of people cheer at the sound of small birds and streams of water flowing in rills as the snow melts, I struggle very hard not to provoke my interlocutors by saying that I don’t like spring. . I much prefer snowstorms and the cross-country skiing they allow to rains and melting which I subconsciously associate with the trauma of some water damage.
In the spring, in addition to having to bear the sight of carpets to be constantly cleaned in the entrance, the torture stretches for some to the obligations surrounding the preparation of the income tax return. Our culture is definitely colored by our climate and its changing seasons; we’ve gone from “RRSP season” to “tax season” in the media landscape.
This fiscal equinox period polarizes minds just as much. There are those who have to pay taxes and others who expect a refund. This shows how many individuals do not at all approach their preparation for the fall of April 30 with the same state of mind!
Tax refunds applied to financial strategies
If you are one of the lucky ones in the second group, here are some ways to use this refund wisely. Having a predetermined plan for how to allocate this amount before receiving it will reduce your chances of succumbing to over-enthusiasm when faced with a sudden increase in your available cash. No, a change of garden furniture or the purchase of an impromptu trip is not really a valid capital utilization assignment, although we all agree that the endorphins generated by these transactions will unequivocally beat those following a repayment of your line of credit, for example!
Let’s highlight two essential tips here, knowing that a financial plan should always be thought out according to personalized factors. First, parents should use the tax refund to top up their children’s Registered Education Savings Plans (RESPs) (or to open one outright) to receive, from both orders of government, the generous grants associated with it, which can reach up to 30% of the sums invested.
Although RESP contributions have been on the rise in Canada since 2016, a certain misunderstanding of the program is causing some parents to refrain from contributing, for fear of having to give all of their investments held in this plan to their future geniuses. budding. However, it is quite possible for the subscriber to limit the financial support to the children to the educational assistance benefits withdrawn from the plan and to take back the remaining contributions to invest them later on a personal basis. It is therefore impossible, in my opinion, to contribute too much to this generous program.
If you don’t have dependent children, the tax refund should be used to repay your loans, the interest on which is non-deductible, ie consumer debts, such as personal cards and lines of credit. In the absence of these, we will make new RRSP contributions in anticipation of retirement or, new in the coming weeks, we will open a tax-free savings account for the purchase of a first property. In fact, if you do not own an eligible home, you could contribute to this new plan from your reimbursement through your 2022 RRSP contributions and, eventually, take advantage of both these plans to consolidate your possible down payment for the acquisition of your residence.
Avoid unpleasant surprises next year
Newly self-employed individuals are often among the taxpayers who expect a tax bill by April 30, as are new owners of incorporated businesses who have made advances to themselves in the first two years of operation. If they receive a reprieve from making installment payments for the first year of their business, the surprise is often inversely proportional to their success rate as a new entrepreneur.
The use of a bank account separate from the one reserved for personal needs to oversee the business practice of self-employed workers should be considered in order to facilitate the constitution and maintenance of a working capital providing for installments and other expenses. variables. Cash management is a challenge for all entrepreneurs whose incomes are not always as stable as those of employees.
For employees who change jobs during the year 2023, also ensure that source deductions are adjusted to cover the estimated full income at the end of the year, or contribute more to your RRSP to cancel the additional tax payable if this is the case. Contributing to an RRSP on a periodic and systematic basis, in addition to facilitating savings and reducing your exposure to market volatility, helps to avoid unpleasant spring surprises.
Either way, a key factor in taming your tax preparation period is getting organized. The ideal is to do a monthly personal accounting as well as to take care to always classify and keep important documents. Like it or not, tax season will come back every year… along with mud season.