Around 19 million Canadians can expect a tax refund in 2020, the average refund is $1400. In a normal year you might be tempted to go out and splurge with your refund but this year during the pandemic you might want to consider doing something else with your refund.
- Spend some of it – this might be the last thing that many people might be thinking of doing with their refund as they are out of work or struggling financially. If this is the case with you, you might consider spending part of it especially in small businesses which are struggling to survive. If you are still working, have a stable income, your debt load is under control and your retirement savings are on track then you might consider spending some or all of your refund. Consumer spending is necessary to help businesses get back on their feet and help us to get out of the current recession.
- Use your refund to pay down your debt – especially on those high interest credit cards. If your bank is allowing you to defer your mortgage payments take advantage of that if you can and redirect your payments to your credit cards or other high interest debt along with your tax refund.
- Invest for the future – some good financial planning advice is to have at least three months of spending available as an emergency fund. If you have done this in the past you are probably very thankful for that nest egg right now. If you have never done this, now might be the time to start your emergency fund, start saving for retirement or add some extra money to your RRSP. If you are not at your limit investing extra this year should help your tax situation for 2020. As the investment market has taken a hit this year, you might consider saving your refund to invest in the market when securities may be “on-sale”.
- Give some away – Charities are hurting as much as if not more than businesses at this time. Canadians are not donating their money or time as much to help with the important services that charities provide. If you don’t need all your refund, consider giving some to your favorite charity.
- Upgrade your skills – if you have lost your job due to Covid-19, think about upgrading your skills to make yourself more marketable when looking for a new job. This is a good time to consider how you can upgrade your skills and you can use your tax refund to help pay for that training.
- Finally, many things have changed in 2020 due to Covid-19. Millions of people have received government support most of which is taxable, but no tax has been withheld from payments such as the Canada Emergency Response Benefit. You might be surprised next year to find that you owe taxes on your 2020 return so it would be a good idea to put your refund in a savings account so that you have some money set aside if instead of getting a refund you have to pay.
From an article by Tim Cestnick in the Globe and Mail