The Mad Dash to April 30 - Stay Focused on the Plan

The great tax filing race is on. Most people know that April 30, the tax filing deadline for individual taxpayers, is three weeks away.

But in the heat of the moment it is easy to forget that this is the most significant financial transaction for many taxpayers.  If you are a tax and/or financial advisor bent on using this event as a “teachable financial moment”, the big question, in terms of maximizing and leveraging that significant windfall is to remember to ask a simple question:

“What are you going to do with your tax refund--will you spend it or invest it?”

With the average refund last year coming in at $1700—and with the new Family Tax Cuts and enhanced Universal Child Care Benefits providing additional windfalls for some —the average Canadian could double today’s average retirement savings just by investing their tax bonuses!   It’s a significant value proposition to clients when their tax and financial advisors can help them discipline their decisions and leverage their tax options.

Here are six tax efficient ideas for building wealth using a tax refund.  Be sure to discuss them during the rush to the tax filing deadline:

1. Bad Debt:  Pay off expensive, non-deductible debt, like credit card balances. (Then vow to budget and live within your means, saving first, before spending.)

2. Save within a TFSA—the Tax Free Savings Account. It's a great place to park money and earn tax free investment income. Clients must file a tax return to build TFSA, as well as RRSP contribution room.

3. Use RRSP Room:  If there is taxable income, investing in an RRSP brings immediate tax savings--in the double-digits, money that can then be used for a TFSA contribution.

4. Invest in an RESP: For clients with children or grandchildren the RESP comes with a sweetener—the Canada Education Savings Grants and Bonds.

5. Invest in an RDSP:  Invest the money in an RDSP—a Registered Disability Savings Plan—for a family member who qualifies for a Disability Tax Credit, and benefit from the grant and bond structures available here.

6. Invest with Tax Efficiency:  Invest the money in non-registered accounts, after exhausting the possibilities above, with a view to earning tax efficient income like dividends and capital gains.

And yes, it’s true, best advice and intentions, some people will simply succumb to the pleasure of consumerism.  Oh well, at least it will stimulate the economy!

But, do ask your clients to think about this for next year: the trick to mastering your money is to take control of the first dollar you earn, hold on to it the longest through wise investment choices, and then, pass along the most to yourself in retirement and your heirs at death.  Good luck in the countdown to April 30th. . and try to get some sleep!

Evelyn Jacks is President of  Knowledge Bureau. Readers may sign up for a free subscription to Knowledge Bureau Report which will feature a federal budget summary on April 22.  See the newsroom at www.knowledgebureau.com.