Well, with April 30 in the rear-view mirror, it’s time to turn our tax attention from filing compliance to refund investment.
Understanding that your clients may have visions of travel, retail and dining exploits dancing in their heads, here are some suggestions you can offer that will help keep their financial affairs on firm ground.
Your RRSP
This will help generate another refund, but in the meanwhile is arguably an interest-free loan to the government until you file next year’s return. You could offset this by filing Canada Revenue Agency Form T-1213 to reduce tax deductions at source over the coming year.
Spousal RRSP
Rest assured that the spousal RRSP remains a useful income-splitting tool even with the advent of the pension-splitting rules, particularly if access is desired prior to age 65.
RRSP loan paydown
If you took out a loan for your RRSP contribution, a prudent use of the generated refund is to eliminate or significantly reduce the loan balance now. The longer it remains outstanding, the more the non-deductible interest erodes the value of the proposition.
Mortgage reduction
The sooner a mortgage is retired, the sooner there will be more in the monthly budget to devote to retirement savings. Whether mortgage and savings are addressed concurrently or in sequence, both contribute to your comfort level, financially and psychologically.
Paying down discretionary non-deductible debt
Regardless of why it’s there, this kind of debt can often compound against us faster than we can accumulate savings. Eliminate such costly commitments as soon as manageable.
TFSA
Not since the entry of the RRSP in 1957 has tax-sheltered investing been made so broadly and easily available. Consider also that a cash gift to a spouse that makes its way into a TFSA will not be subject to spousal income attribution rules.
RESP
Especially for deposits that attract government grants, an RESP is great for education saving and income-splitting. As well, the systematic build should dampen sticker shock down the road when you see the amount due on your child’s acceptance letter.
RDSP
Significant government support and tax benefits are available through these plans for families with disability issues. Be sure, however, to coordinate the RDSP within an overarching life program, of which financial management is of course a key component.
Non-registered investments
Whether investing directly or using leverage, tax effect is a key influence in managing types and sequence of returns among interest, dividends, capital gains and return of capital. Have a plan within this non-registered world and dovetail it with other savings.
Live it up … a bit
After all, saving is just spending-in-waiting – but try to keep it in balance.