Written by: Kaleido
Have you reviewed your 2022 spending habits? Have your monthly savings and spending priorities changed? Many families have felt the effects of inflation in their daily lives. With the increase in grocery shopping expenses and higher mortgage rates, budgets have taken a hit! Now is the time to think about the best strategy for making the most of your tax return so that you can be better prepared for the unexpected and brace yourself against the impact of inflation.
After a year of saving in 2021, Quebec families had to reduce their spending in 2022 to cope with the rising cost of living. This reduction in spending has inevitably led to a reduction in savings for many. If you were still able to contribute to your RRSP in 2022 despite the economic climate, you may be eligible for an attractive tax refund and there are several strategies to take advantage of it.
He who pays his debts grows rich! This is even truer if you’re able to repay high-interest debts, like certain types of personal loans or, even better, an unpaid credit card balance that takes away tens of dollars from you each month.
Too few parents know how profitable contributing to an RESP can be. Depending on your family income, you could receive government grants matching 30% to 60% of your contributions1! This could represent an additional amount of up to $12,800 per child in Quebec and $9,200 in New Brunswick2. Hard to beat!
Let’s suppose a middle-income family receives a tax refund of $1,000 this spring and decides to invest3 it in an RESP for their 5-year-old. At the time of starting post-secondary education, this smart investment decision could be worth nearly twice as much, i.e., approximately $1,850. What if the family decides to invest more than once and does the same every spring for 10 years? It’s simple math: in the end, the RESP could amount to nearly $18,500. This will be a real boost when the child is faced with numerous education-related expenses such as a new computer for CEGEP, tuition fees, books, apartment, etc.
Your children turned 17 and are now pursuing a post-secondary education, whether at a trade school, college or university? If you already contributed to RESPs for them and are now ready to get your investment back, you can go full circle and add extra amounts to your RRSP more easily. How? By withdrawing the grants and investment income4 for your children and getting back the sums you contributed. In fact, the withdrawal of the capital is tax-free; this amount can then be invested elsewhere, such as in an RRSP. Paired with your tax refund, these heftier contributions will in turn generate more tax savings, meaning you will have benefited from great incentives several times with the same money!
Of course, those strategies are primarily aimed at families with sufficient income and deductions to be subject to income tax. Yet, lower-income families can also open RESPs thanks to the Canada Learning Bond (CLB). The CLB, of up to $2,000 per child, is offered to low-income families, enabling them to open an RESP without having to make contributions.
1. Canada Education Savings Grant (CESG) from 20% to 40%. Based on adjusted family net income. Quebec Education Savings Incentive (QESI) from 10% to 20% (in Quebec only). Based on adjusted family net income. Certain conditions apply. See our prospectus at kaleido.ca.
2. Canada Education Savings Grant (CESG) from 20% to 40%. Quebec Education Savings Incentive (QESI) from 10% to 20%. Based on adjusted family net income. The annual limit is set at $600 for the CESG and at $300 for the QESI. The lifetime limit per beneficiary is set at $7,200 for the CESG and at $3,600 for the QESI. The Canada Learning Bond (CLB) is up to $2,000 per beneficiary and is offered for children born after December 31, 2003, from families who meet the financial criteria. Certain conditions apply; see our prospectus at kaleido.ca.
3. 3% rate of return and 30% grant rate. Calculations for illustrative purposes only. Returns are not guaranteed.
4. See the description of eligible post-secondary programs in our prospectus at kaleido.ca. Certain conditions apply. Subject to the withdrawal limits established under the Income Tax Act (Canada).