7 Smart Things to Do with Your Tax Return

With the April tax deadline behind us, many Canadians have likely received or are expecting a tax refund from the government. According to the Canada Revenue Agency, about 23.7 million Canadians who filed their taxes received a return, and the average amount was a nice bit of cash - about $1,440.

While our instincts might be to spend that money frivolously, a recent BMO survey revealed that only about 12% actually go through with it. The large majority - approximately 51% - tend to spend it on sensible, long-term needs.

Many financial experts believe that you should use your tax return to grow your net worth. What does that mean? Well, basically, it means increasing the things you own and decreasing the things you owe. If your tax return is burning a hole in your pocket, and you're looking for some sure-fire ways to get it working for you, here are a few suggestions:

#1 - Pay off high interest debt

Okay, it's not the most fun way to spend your money, but it's one of the most effective to save money down the road if you have a significant credit card balance. With most credit cards charging 18% interest, it's not a bad place to start.

#2 - Contribute to your RRSP

Even if retirement seems to be an eternity away, it's not a bad time to start socking money away in an RRSP. As an added bonus, the government returns a third of your annual contributions - which means you'll have a tax return coming your way next year, too. Plus, first-time homebuyers are now able to withdraw up to $25,000 from an RRSP tax-free to help finance their mortgage.

#3 - Consider a Tax-Free Savings Account (TFSA)

A TFSA is a new option for your tax refund this year. By opening a TFSA, you can grow your refund tax-free and withdraw it anytime (unlike an RRSP). This type of account is ideal for people of all ages looking to grow their money in the short-term, say within one to five years.

#4 - Invest in yourself

While this won't directly increase your net worth, anything you do to improve your skill set can help you make more money down the road. So if you've been thinking about going to back to school, or taking a few courses or professional designations that will make you more valuable to employers, now is the time to do it!

#5 - Prepay your mortgage

Most mortgages allow lump sum payments. If you're in the early years of your mortgage, you may not realize that the bulk of your monthly payments are interest. Anything you can put down above the minimum will not only allow you to save thousands of dollars in interest over a 25-year span, but it will take years off the life of your mortgage, too.

#6 - Renovate your home

If you'd prefer to increase the value of your home so that you can get more money when it comes time to sell, you might want to put your return towards a new kitchen or bathroom. As part of its stimulus package, the Federal government is also offering a Home Renovation Tax Credit (HRTC). Until next February, you can actually get money back on your 2009 tax return if you make structural improvements to your home that range between $1,000 and $10,000.

#7 - Save for a rainy day

In this economy, you never know when you'll need a few months' salary saved up. Get a head start by putting your tax return away in a high-interest savings account or low-risk, easily accessible investment.