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3 Strategies to Get the Most Out of Your Tax Refund

Written by: Kaleido

March 15, 2021

2020: A Year of Financial Upheaval

Are you part of the thousands of Canadians who switched jobs over the last few months? Did your income fluctuate so much it looked like a rollercoaster ride? You’re not alone.

Between last year’s economic shock, health crisis, job losses, and seesaw recovery, many families had no other choice but to review their budget, adjust their expenses, and sometimes even substantially increase their savings rate to better prepare for unforeseen contingencies.   

If you’re among the lucky ones for whom teleworking or changing careers gave greater leeway to the family budget, now is the time to figure out what to do with a potential tax refund or unexpected liquidity.

2021: The Year of Investments

Statistics show that Canadian families have been saving more than ever amid pandemic, and that’s great news! If you contributed to your RRSP in 2020, you might receive an interesting tax refund in 2021, and there are many strategies to take advantage of it.  

Strategy #1: Repaying Your Consumer Debt

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.  

Strategy #2: (Re)investing in an RESP

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. A sum that will be of much help to buy a brand-new computer for school and furnish a first apartment!  

Strategy #3: (Re-re)investing in your RRSP

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. You can withdraw your RESP contributions tax-free, which allows you to boost your RRSP contributions. 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.

Want to get the most out of your tax refund by investing in an RESP? Contact one of our scholarship plan representatives.

Legal Notes

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 which post-secondary programs are eligible in our prospectus at kaleido.ca. Certain conditions apply. Subject to the withdrawal limits established under the Income Tax Act (Canada).