According to a recent survey commissioned by BMO Nesbitt Burns, 48% of Canadians will be putting their 2009 tax refund towards paying credit card debt and other bills.

The survey, conducted for BMO Nesbitt Burns by Leger Marketing survey, also found that:

• 21% are planning to invest their refunds in RRSPs and TFSAs;

• 15% are planning on using their refunds for home renovations or household expenses;

• 12% will be using their refunds for travel and/or leisure items

• 4% plan to use their refunds to pay down their mortgage

“There are several good uses for your tax refund. How you use it depends on your personal situation,” says John Waters,manager, Tax Planning, BMO Nesbitt Burns.

Advisors can help clients determine how to best put their refund to work by developing a financial plan that addresses a client’s individual needs, including debt reduction and investing for retirement.

Top 5 tips on how to make best use of a 2009 tax refund

1) Pay down your RRSP loan or make a 2010 RRSP contribution now

Clients who took out a loan to maximize their RRSP contribution and generate a larger refund can use their tax refund to pay down the loan. If not, they can consider making your 2010 RRSP contribution now instead of waiting until the deadline next year. This will allow them to benefit from almost an extra year of tax-deferred growth

2) Pay down credit card debt

Interest on some credit cards can eat away at savings. Clients can reduce the cost of credit by using their tax refund to reduce or pay down credit card balances, targeting the highest rates first.

3) Lump sum mortgage payment

Clients with mortgages can use their tax refund to make a lump sum payment. Applied directly to your principal, a lump some payment could save significant dollars in interest costs over the life of the mortgage.

4) Top-up a TFSA

This tip is for clients who are not carrying any extra debt. Contributing to a Tax-Free Savings Account (TFSA) can let them grow their money tax free. Even if they maxed out their TFSA contribution in 2009, they have room for an additional $5,000 this year.

5) Save for education

For clients with children, contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children’s future. Parents should consider opening an RESP using their income tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. By maximizing contributions every year, parents could earn up to $7,200 in lifetime grants for every child.

IE