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What to do with your tax refund

A refund is basically free money, right? Once you receive your tax return, your knee-jerk reaction may be to spend it on a new spring wardrobe or hop on a plane less rainy and cold destination. And we support that—kind of.

It’s totally fine to spend a small chunk of that money treating yourself—we endorse up to 20%—but being smart with your refund will put you in a way better position financially in the long term. Hear us out. Here are some financially savvy ways to use your tax refund.

Pay down bad debt

There’s a difference between good debt (mortgage debt or student loan debt, for example) and ‘bad’ debt. Credit card debt or other kinds of high-interest debts fall into the ‘bad’ category. Use your return to pay off some of that ‘bad’ debt, starting off with the highest interest rate first.

Put it towards a rainy day fund

Many Canadians don’t have adequate savings that they can access in the case of a sudden financial emergency, like job loss, a medical emergency, major house repairs or other unexpected surprises that impact your wallet in a big way. It’s recommended that you have three to nine months of living expenses saved up for all of those ‘what if’ moments (also known as your emergency fund). Use your tax refund to start or add to an emergency fund so you’ll have peace of mind if anything unexpected happens.

Invest it into yourself

Knowledge is power. If there’s a course, certification or professional development opportunity that you’ve been itching to take but couldn’t justify the financial sacrifice before, why not use your return to benefit your long-term career goals?

Invest it

You can make your money make more money by putting your tax refund towards an investment. This includes things like an RRSP, RESP, or TFSA. You could also use it to buy a GIC sheltered in a tax-free savings account.

Put it towards retirement

Start or grow your RRSP investments with your return. Remember that the contribution amount to this account is deducted from your gross income, which potentially lowers the tax you pay on your income today. So by using your tax return for this purpose, you’re getting a head start on additional tax savings for the deduction you’ll claim in the future.

Pay down your mortgage

Putting a lump sum down on your mortgage will help pay it off sooner. If you’re a new homeowner this option might be best for you. It’ll reduce the principal early on, which means less interest paid over the life of the mortgage.

Put it towards home improvements

Use the money to invest in your home. Grow your equity by making needed repairs or renovations that’ll pay off in the long run. Replace loose windows and doors, add insulation, or switch to energy-efficient appliances to save on bills. New fixtures like this will also yield more return and increase the appeal of your property if you decide to sell it.

Still can’t decide?

No worries. Our financial experts can help you determine the best option for you. Or, if none of these options apply, we’ll take some time to understand your situation and find the right solutions to help you reach goals. Give us a shout.



The stuff we have to say.

Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products.  Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.  Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.

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