HOW TO BLOW YOUR TAX REFUND.

The f i rst t hing you should know about the tax refund cheque that will be arriving in the mail next month is that getting it means you’re a bit of a sucker — you’ve been providing Ottawa with a taxfree loan for months.

Anybody who would like to have me make deductions from their paycheque all year long, just email — I promise to pay you your money back in May with no interest. No problem.

If you think that’s extreme, you should know that there’s nothing to prevent you from reducing your taxes at source: the Canada Revenue Agency has a form you can present to your employer. Your employer tax deductions may be higher than necessary for a variety of reasons — everything from not factoring in your RRSP contributions to charitable donations.

Nevertheless, Canadians have become wed to the i dea of getting a tax refund. A poll by Environics Research Group commissioned by TD Bank Group and conducted between February 25 and March 17, 2016 found that 57 per cent of respondents expect some kind of tax refund this year. Of those receiving a refund, 61 per cent expect to get up to $1,499.

For s ome Canadians, there’s almost a forced savings aspect to the tax refund. They’re essentially letting the government hold onto their money because they know they’ll blow that extra cash on their own throughout the year.

“The challenge then becomes, if it truly is forced s avi ngs, what happens when the refund actually comes,” says Talbot Stevens, a London, Ont.- based financial author who believes understanding f i nancial behaviour is as important as any other advice when it comes to money. “If the argument is people are doing this like they did with forced savings from Canada Savings Bonds ( once a popular payroll deduction) let’s make sure they actually do something with their savings.”

So how do you that? You start by earmarking that refund money for expenditures that might have a lasting effect on your fortune. ❚ First on the list is using your refund for a government program that lands you grant money, increasing the windfall. If you have children, a contribution to a Registered Education Savings Plan will get you a 20per cent return, up to $ 500 per year per child, on your contributions. If you are disabled or have a disabled child, a contribution to a Registered Disability Savings Plan will see the gov- ernment match your contribution with a grant worth anywhere from 100 per cent to 300 per cent of what you just deposited. ❚ High interest debt is an easy target. If you’re paying 24- per- cent interest on an overdue credit card bill, where else are you going to get that type of return with your refund cheque? The challenge, Stevens says, is not to pay down your bill and then build it right back up, because then you’re back at square one with no refund cheque to fall back on. ❚ Registered Retirement Savings Plans contributions. Put the money right into your RRSP contribution for 2016. Any investment gains from the money become immediately sheltered and you’re already on your way to a refund from your 2016 t ax return. Low- i ncome Canadians, who don’t really benefit from deferring taxes by way of an RRSP, can always look to a tax- free savings account, where investments and their gains are sheltered for life and access to the money unimpeded by penalties. ❚ Life i nsurance s hould almost be automatic f or people with children. “It’s certainly a topic that makes people a bit squirmy,” says Linda MacKay, senior vicepresident, personal savings and investing, with TD Canada Trust. Have that conversation. If you’ve got money coming from a refund you plan to blow, it means you can afford to earmark a certain amount of cash each month f or an i nsurance policy. I’ve lost count of the social media campaigns to raise money for people who left behind children with one parent and no means to carry on financially at the same standard of living — that’s a legacy you don’t want to leave. ❚ Home repair. You may not have had money before for a project that desperately needed to be done and your refund cheque will get you started on that. ❚ If you haven’t set up an emergency fund, now is the time. “People often overlook having a minimum of three months, ideally six months, to cover expenses, says MacKay. She adds that a refund can be also be used to start a new chapter in your life after something like a divorce or a need for a new career. ❚ Spread the refund money around. There’s nothing to say a little money can’t go to all of the things mentioned above. ❚ I’ ll leave the best, or the worst, for last: Taking that money and spending it on a vacation. Kevyn Nightingale, international tax partner with MNP LLP, says it might not be popular, but spending t he money on “something you’ll remember your whole life” has value beyond dollars and cents. But, he does caution against just blowing the money on a meaningless trip.

One final tip: Consider direct deposit instead of waiting for that cheque — it might mean a couple fewer days on an interest-free loan for Ottawa.

THERE’S ALMOST A FORCED SAVINGS ASPECT TO THE TAX REFUND.