5 smart ways to use your tax refund in Canada

You (finally!) submitted your income tax return. You may already be looking forward to receiving your refund. And for how you’ll use it. A much-anticipated trip? A down payment on a new car?

Here's another thought: You can use that money to brighten your financial situation over the long term. How? Here are five smart ideas to make your tax refund work for you.

1. Start an emergency fund

Do you have an emergency fund? Aim to have enough money stashed away to cover about three to six months of living expenses. We learned through the pandemic and recent trade tensions that no one is immune to major unexpected events.

Keep that money in an easily accessible, high-interest emergency savings account. Or use your tax-free savings account if you have contribution room. You can access these funds instead of dipping into your RRSPs – which would only increase your tax burden.

2. Top up your RRSP

For the 2025 tax year, the registered retirement savings plan (RRSP) contribution limit is 18% of earned income from the previous year, up to $32,490. That number will be adjusted if you put money in a company-sponsored pension plan.

A recent survey shows that only 39% of Canadians intend to contribute to their RRSPs in 2025. This marks a sharp decline of 10% from 2024. Remember even a modest contribution is better than none to help build your retirement fund.

And automating your savings every month or with every paycheque can help you save even more. You won’t have to think about it when the deadline rolls around. And the interest on your money will compound over the whole year.

3. Pay down credit card debt

According to the Bank of Canada, 89% of Canadians reported owning at least one credit card in 2023. And that 71% of Canadians pay off their balance in full each month. Paying down or paying off your high-interest credit card debt is a wise move. It will free up money that you can use to boost your retirement savings.

4. Pay down your mortgage

As of March 2025, the national average home price in Canada was $678,331, marking a 3.7% decrease from the previous year, according to the Canadian Real Estate Association. However, regional variations exist. For instance, Montreal’s housing market experienced growth, with the average home price reaching $625,026—a 5% year-over-year increase.

Mortgage interest rates have seen some fluctuation. While the Bank of Canada has made several rate cuts over the past year, future rate movements remain uncertain. If you secured a mortgage when rates were lower, it’s wise to prepare for the possibility of higher payments at renewal. Reducing your mortgage principal now can provide peace of mind and help you manage future costs more effectively.

5. Open an RESP

Using your tax refund to contribute to a registered educational savings plan (RESP) is a smart investment in your child’s future. For the 2024–2025 academic year, the average undergraduate tuition fee in Canada is $7,360—a 2.9% increase from the previous year. That’s just tuition. Books, housing, and other expenses can easily add thousands more.

RESPs come with a valuable perk: the Canada Education Savings Grant (CESG) contributes 20% on the first $2,500 you save annually, up to $500 per year and $7,200 in total. Speak with your advisor to ensure you’re making the most of your contributions, as certain rules and limits apply.