• ID-100144154Every year around this time, people are frantically putting money into their RRSP’s and getting their receipts organized for the annual income tax return – it is a dreaded chore for many but can pay off huge if you take care to do it right!

    What do I mean by doing it right? Well if you are employed, that means knowing all of your expenses that concur with your employment – ie. if you are a salesperson, you can claim expenses such as meals (50% of the expenses), mileage and gas and in some cases entertainment, although CRA has really limited the amounts you can claim. If you are self-employed and work from home, you can claim much more than that – it is best to get advice from a tax or accounting professional.

    This article has more to do with how to benefit from one’s tax return and how to best spend your tax return. Whether it’s credit card bills, car loans or line’s of credit, many of us are carrying debt and trying to get control of our finances. A recently released report shows that the average Canadian’s debt (not including their mortgage) is rising and continues to rise. The average debt per person is $26,768 – and it is the highest debt level since the credit bureau started tracking debt levels in 2004.

    Here are some ways to spend your income tax return – and it does not include a vacation!

    If you have a debt level that is out of control, look at all of your options. Sit down and list all of your debts, and look at which ones have the highest interest rates. Mortgages also count. If you are paying 19-28% on a credit card but have a great low rate on your mortgage, put the funds straight into your credit card. Eliminating that debt first will free up cash flow, which can then be put towards your mortgage or any other high interest debt you have such as a car loan, line of credit, etc.

    If you are one of the few who does not have a huge credit card balance and are able to pay it down monthly, then pay down on your mortgage. With RRSP, GIC or any other savings vehicle, it does not make sense to reinvest that money with low returns. Putting the money towards your mortgage, will not only decrease your overall interest but also your amortization.

    After you have paid down your debt, it makes sense to put your money into a TFSA (tax free savings account). There are many benefits but like mortgages, TFSA are not a one-size fits all plan. For instance if you are an employee wth a generous income and defined benefit pension plan and in the future your withdrawals will be heavily taxed, then a TFSA makes sense, as you can withdraw funds tax-free. If you are self-employed or incorporated, TFSA might not make sense as you can shelter your investments in your corporation. Again, seek advice from a tax or accounting professional.

    I am a big promoter of buying real estate for future financial security as a real estate purchase will appreciate higher than any other investment vehicle. Of course, investing in real estate or any other investment vehicle comes with risks so one should educate themselves about the different risks associated with each type of investment type, whether it be RRSP’s, RESP’s, real estate, etc.

    Some people think that getting a tax-return is a great excuse to take a vacation or go on a spending spree! You have to think about future returns! Sure the return on a vacation is relaxation and recharging your batteries but coming back to reality really bites! So think of your future, not your present and spend that money wisely – it will pay off huge benefits to you and that you can guarantee!

    To Your Wealth!

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