Investor's Edge poll finds only 12% of Canadians will invest their tax refunds amid economic uncertainty
A new poll by Investor's Edge shows that only 12 percent of Canadians plan to invest their tax refunds this year.
The survey highlights various uses for these refunds, reflecting the current economic pressures and choices facing Canadian households.
The distribution of tax refund allocations among Canadians is as follows:
- 39 percent are holding their refunds as cash, an increase from 35 percent last year.
- 24 percent are using their refunds to pay down debt, up from 21 percent.
- 29 percent are spending their refunds on essentials, a decrease from 32 percent.
- 12 percent are using their refunds for discretionary spending, down from 17 percent.
- Another 12 percent plan to invest their refunds, a slight decrease from 14 percent.
Luka Marjanovic, managing director and head at CIBC Investor's Edge, advises, “There are more demands on money these days, but Canadians getting a lump sum this spring should consider the opportunity to put those funds to work for them as part of a broader investment plan—particularly given that higher inflation means the value of parked cash erodes more quickly.”
“While many Canadians are planning to hold on to their refund as cash, it may not be a good long-term strategy. Self-directed investing is a low-cost option for putting the cash to work in a way that can earn more over time,” he continued.
The poll also found that more than two-thirds of Canadians, or 68 percent, either have received or expect to receive a tax refund this year, indicating a perception of overpayment on taxes throughout the year.
Marjanovic adds, “While receiving a tax refund may feel like a bonus, it has also been likened to giving the government an interest-free loan from each of your paycheques—money that could have been fueling your investments and earning interest in previous months.”
“Each investor's tax planning should involve minimizing refunds to make the best use of assets throughout the tax year, in addition to deploying any end-of-year refunds.”
Investor’s Edge suggests several considerations for Canadians looking to invest their tax refunds:
- Leveraging tax-advantaged accounts such as TFSAs, RRSPs, RESPs, and FHSAs to manage future tax implications.
- Comparing rates of return and weighing the opportunity costs and risks of investing versus holding cash or paying off debt.
- Learning how to diversify and build a resilient portfolio.
- Reviewing strategies to reduce taxes for the upcoming year, including updating TD1 and T1213 forms for 2024 to lower tax withholding throughout the year.
