A.T. Financial Newsletter
Tax refund? Oh, the choices
Expecting a tax refund? If you apply it strategically, you can stretch that money - even triggering tax deductions, savings, and grants. Here are six ways to make the most of your money.

1. Pay down debt
Use your refund to pay down debt on a credit card, and you'll effectively gain an after-tax rate of return equal to the interest rate. At a 20% interest rate, that's a 20% return.

2. Contribute to your RRSP
Turn your refund into a tax deduction by applying it to your 2015 Registered Retirement Savings Plan (RRSP) contribution (presuming you have sufficient contribution room available). At a marginal tax rate of 35%, a $2,000 RRSP contribution results in a $700 tax benefit.

3. Contribute to an RESP
If you have children, you may be using a Registered Education Savings Plan (RESP) to set money aside for their future post-secondary education. Depositing your refund may enable you to get "free money" from the federal government, in the form of the Canada Education Savings Grant (CESG). The CESG adds 20% to the first $2,500 contributed to an RESP annually.

4. Contribute to your TFSA
Contribute your income tax refund to your Tax-Free Savings Account (TFSA) and it will grow tax-free. A one-time contribution of $2,000 earning 5% compounded annually will generate more than $550 in five years.

The MONEY file
5. Add to your non-registered investment account
Invest in equities and Canadian dividend securities in a non-registered account, and the investment income generated will be more favourably taxed than interest income.

6. Make a charitable donation
When you donate your tax refund to charity, not only will you be doing a good deed, but you'll qualify for a charitable donation tax credit. The federal credit is 15% on the first $200 donated and 29% on contributions above $200. In addition, if you haven't claimed the credit in the past five years, you may be eligible for the First-Time Donor’'s Super Credit, for an additional 25% on the first $1,000 donated.

Want to talk over your available choices? We can help you turn your tax refund into a long-term gain.
Sometimes, splitting with your spouse is a good thing

The new Family Tax Cut has put income-splitting in the news. Available for 2014 tax filing, the Family Tax Cut provides a non- refundable tax credit of up to $2,000 for eligible couples with minor children based on the net reduction of federal tax that would be realized if up to $50,000 of the higher-earning spouse's taxable income was transferred to the lower-income spouse.

But there are also some not-so-new income-splitting strategies that might enable you and your spouse to save tax.

Tax-smart investing. A lower-income spouse who contributes to family expenses often has little or no money left to invest. But if the higher-income spouse pays all the bills and household expenses, it may free up the earning of the lower-income spouse for investing. In a non-registered account, the resulting investment income will be taxed at the lower-income spouse's lower rate.

Spousal loans. The higher-income spouse can lend money to the lower-income spouse to invest. As in the previous strategy, the resulting investment income will be more favourably taxed. Note that the loan must charge interest at a rate that is at least equivalent to the
government's prescribed rate, which is currently just 1%. The interest must be paid no later than 30 days after the end of the year and reported as income by the spouse who made the loan.

TFSA times two. The higher-income spouse can contribute to his or her own Tax-Free Savings Account (TFSA) and give his or her spouse the funds to contribute to a TFSA as well, resulting in more money in a tax-sheltered environment.

Spousal RRSP. If you and your spouse will be in different tax brackets during retirement, you can open a spousal Registered Retirement Savings Plan (RRSP) now for a tax advantage in retirement. Pension-income-splitting allows you to split up to 50% of eligible pension income, but with a spousal RRSP you can split more than 50% of retirement income.

Remember that tax strategies can be complex, so before implementing any of the above, we recommend that you consult with your professional tax advisor.
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