Many Canadians received a tax refund this year by filing their 2009 income tax return. If you have not yet decided what to do with your tax refund, here are some suggestions.

Pay Down Debt – This is actually a form of saving. As you reduce your debts your net worth increases. Always choose to pay the debt with the highest interest rate first. Often the order of highest interest cost is credit cards, line of credit, automobile loans and then mortgages. Review your debts to see what interest is being charged then make your decision on what debts to pay.

Save the Money in a Registered Retirement Savings Plan (RRSP) – If you contribute regularly to your RRSP chances are that your contribution was responsible for your tax refund. By using your tax refund to top-up your RRSP in 2010 you will be using government money to add to your retirement savings and enhance your refund next year.

Save the Money in a Tax Free Savings Account (TFSA) – Anyone who has not yet opened a TFSA can now deposit up to $10,000 into a TFSA in 2010. Your total limit for 2010 is $10,000 less any deposit(s) made previously.

Saving Your Child’s Education – Maybe you have children and you have opened a Registered Education Savings Plan (RESP). A $2,500 contribution into a RESP will generate a minimum $500 government grant. Review your circumstances to ensure that you are eligible. You can receive up to $1,000 if you are carrying forward past year’s contribution limits.

Spend the Refund – If you are comfortable that your financial house is in order and you have no need to pay debts or save for the future then you can always opt to spend the refund. Many use the refund as a source of funding vacations or paying for home renovations while others use the refund to make special purchases. You know you always deserved a big screen TV.

It’s important to remember why you received a tax refund. You over paid your taxes during the year. You actually gave the government an interest free loan of your money. That’s why you received a refund. Although many like to receive a tax refund this is the reality. An alternative is to contact the CRA and ask for permission to have your taxes adjusted at source. If approved you will receive a larger pay cheque however don’t expect a tax refund at the end of the year.

As always it’s your decision. If you don’t mind giving the government an interest free loan or you do not have the discipline to save on a regular basis then receiving a tax refund at the end of the year is a good idea. On the other hand, if you have the discipline to save or pay debts on a regular basis then making a request for taxes to be adjusted at source is a better idea.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.