What should I do with my tax return?

TORONTO – A new survey shows that of the Canadians who expect a tax refund this year, the majority of them – 62 per cent – will deposit or invest the money.

The Scotiabank survey said 20 per cent – compared to 34 per cent in 2012 – will use their refund to pay off debt.

Read more: Majority of Canadians to reinvest tax refund: survey

Pay off debt, go on a vacation, or invest in an RRSP – for many Canadians, the choice isn’t always clear.

The Investor Education Fund (IEF), a non-profit organization organized by the Ontario Securities Commission (OSC), recommends that Canadians who are unsure of how to manage their finances, or who are simply too busy to monitor their investments, should seek out a financial advisor.

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A report compiled by the OSC on working with financial advisors recommends asking friends, family and coworkers for referrals, keeping in mind that “what’s good for one person many  not be good for another.”

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The OSC also recommends choosing an advisor who you believe is trustworthy, who is registered with your local securities regulator and to screen multiple candidates first, asking questions such as “What is your professional experience?” and “How are you paid for your services?”

“Everyone’s circumstance is unique,”  said Mike Henry, senior vice president of retail payments, deposits and lending at Scotiabank.

For some Canadians the best move might be paying off debt, while for others it’s to invest in an RRSP, he said. Henry recommends seeking out an advisor for some free advice, tailored to your financial circumstances.

“The key is to have a plan for what you will do with the refund,” said Jason Round, head of financial planning support at RBC Financial Planning.

“Those who don’t plan are more likely to make quick decisions that don’t benefit them long-term,” said Round.

A simple rule of thumb Henry added is that “if you are carrying high-interest rate debt, [paying it off] is always a good option.”
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Round agreed that Canadians with a lot of consumer debt should look into paying that off first. “Some credit cards charge interest rates over 20 per cent – you’d need to make a lot from your investments to offset that kind of interest cost,” he said.

The IEF also recommends taking a hard look at your debt levels, “The higher the interest rate on your debt, the more important it is to pay it down as quickly as possible.”

The IEF offers many online tools and calculators for Canadians, including a calculator that weighs paying down debt versus investing and retirement and investment worksheets.

Tuesday is the deadline for Canadians to file their personal taxes for the 2012 tax year.

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