By Jasmin Brown

BDO Debt Solutions

Wise Uses for Income Tax Refunds

Apr 25, 2022 | 8:59 AM

It is that time of year again — time to file your income taxes. Although some people may find that they owe taxes this year, many people will be getting an income tax refund. A lot of people seem to think that this is “free money” so they should spend it in any way they want. It is not just “free money,” but money that you worked for and overpaid to the government. While it can be tempting to spend the money on something fun, there are some wise things that you can do with your income tax refund instead.

Start an Emergency Fund

Recent polls are showing us that people are feeling overwhelmed, that they are being outpaced by the increasing cost of living, and that they would be unprepared for unexpected expenses. Using a tax refund to start an emergency fund would be a good way to relieve some of that stress and set some money aside in the event that you have an unexpected expense in the future.

Pay Down Debt

If you are one of the many people that is carrying a balance on your credit cards, lines of credit, or any other credit facility, use your income tax refund to pay down the balance. There are a few different approaches in terms of which debts to pay off first that you can find on our website.

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Invest in Your Financial Future

Many people are experiencing difficulties when it comes to saving for retirement or the future. The demands of everyday life and the increasing cost of living are making people put saving lower on their priority list. An income tax refund may be a way to start or contribute to an RRSP or TFSA. And contributing to an RRSP could increase your tax refund for the next year.

Repairs or Maintenance on Home or Vehicle

Perhaps you have been putting off some much need maintenance on your home or repair on your vehicle that, if left alone, may cause bigger financial issues in the future. Using your tax refund to complete the job may save you money or save you from relying on credit in the long run.

If You Owe Income Taxes

Not everyone will be getting a refund. If you are one of those that owes income tax this year, assess your current financial situation and determine if you can come up with the funds to pay off the balance. Ignoring income tax debt is not a good idea as interest and penalties can increase the balance owing very quickly. Some additional options when dealing with income tax are:

· Contacting Canada Revenue Agency regarding a repayment plan – they typically will not compromise on the total amount owing, but they may work with you on a repayment plan;

· Looking into whether you qualify for Taxpayer Relief – under certain extreme circumstances that were beyond your control, the government may agree to waive your penalties and interest;

· Reaching out to a Licensed Insolvency Trustee – they will explore options with you, including filing a bankruptcy or proposal. LITs are often successful in negotiating with Canada Revenue Agency on your behalf, and it often results in paying less than the full balance due.

We are living in stressful financial times. Interest rates are rising and inflation is soaring. Many households are living paycheque to paycheque. If you receive an income tax refund and use it wisely, it may give you some much needed financial relief. If you are struggling with income tax debt, or any other type of debt, there are options available to you. A Licensed Insolvency Trustee can help.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information about bankruptcy, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Jasmin Brown is a Senior Vice President overseeing the insolvency practice in Saskatchewan. She is committed to providing creative and practical debt solutions with empathy, understanding and professionalism to help people overcome their financial difficulties.l