How can I optimize my 2023 tax return?

Have you reviewed your 2023 spending habits? Have your monthly savings and spending priorities changed? Many families have felt the effects of inflation in their daily lives. With the increase in grocery shopping expenses and higher mortgage rates, budgets have taken a hit! Now is the time to think about the best strategy for making the most of your tax return so that you can be better prepared for the unexpected and brace yourself against the impact of inflation.

Inflation-coping strategies

In 2023, Quebec families had to reduce their spending to cope with the rising cost of living. This reduction in spending has inevitably led to a reduction in savings for many. If you were still able to contribute to your RRSP in 2023 despite the economic climate, you may be eligible for an attractive tax refund and there are several strategies to take advantage of it.

Paying off your consumer debts

He who pays his debts grows rich! This is even truer if you’re able to repay high-interest debts, like certain types of personal loans or, even better, an unpaid credit card balance that takes away tens of dollars from you each month.

Reinvesting your tax refund in an RESP

Too few parents know how profitable contributing to an RESP can be. Depending on your family income, you could receive government grants matching 30% to 60% of your contributions¹! This could represent an additional amount of up to $12,800 per child in Quebec and $9,200 in New Brunswick². Hard to beat!

Let’s suppose a middle-income family receives a tax refund of $1,000 this spring and decides to invest³ it in an RESP for their 5-year-old. At the time of starting post-secondary education, this smart investment decision could be worth nearly twice as much, i.e., approximately $1,850. What if the family decides to invest more than once and does the same every spring for 10 years? It’s simple math: in the end, the RESP could amount to nearly $18,500. This will be a real boost when the child is faced with numerous education-related expenses such as a new computer for CEGEP, tuition fees, books, apartment, etc.

Reinvesting your tax return in your RRSP

Now that your children have completed their post-secondary education and you're ready to get your investment back, you can go full circle and add extra amounts to your RRSP more easily. How? By withdrawing the grants and investment income⁴ for your children and getting back the sums you contributed. In fact, the withdrawal of the capital is tax-free; this amount can then be invested elsewhere, such as in an RRSP. Paired with your tax refund, these heftier contributions will in turn generate more tax savings, meaning you will have benefited from great incentives several times with the same money!

Of course, those strategies are primarily aimed at families with sufficient income and deductions to be subject to income tax. Yet, lower-income families can also open RESPs thanks to the Canada Learning Bond (CLB). The CLB, of up to $2,000 per child, is offered to low-income families, enabling them to open an RESP without having to make contributions.

(Updated―1st published March 15, 2021)