It’s tax time, and while tax season may be filled with doom and gloom, remember that in many cases you may be entitled to a refund! In fact, there are also plenty of tax benefits and credits that Canadians are missing out on, with the Canada Revenue Agency (CRA) reporting over $1 billion in unclaimed credits in 2021 alone.
However, once you get that tax refund, it can be so incredibly easy to spend it. This is cash you’re being given back from the government, and it’s finally yours once more! But before you go out and buy a new television, there are some things to consider.
A recession is coming
Do you have an emergency fund? How about debt? These are the first places I would consider putting my tax refund as a recession looms. Paying down debt, in particular, is a solid choice. Now I’m not saying you should put every penny towards your mortgage. However, if you have high-interest loans from credit cards or student debt, this is a perfect place to put your cash.
As for the emergency fund, I would consider popping this into your Tax-Free Savings Account (TFSA) if you have one. The TFSA allows you to take out as much as you want, whenever you want. Just make sure you’re not over-contributing by checking on your limits with the CRA.
An emergency fund should have about three months of wages saved up. If that’s the case, your tax refund may not cover it. So this is how I would invest that refund in 2023.
Choose banks
The Canadian Big Six Banks are solid options for those seeking safety with their cash. Right now, the banks are down on the TSX today; it’s true. However, in the long-run these banks have provisions for loan losses that will allow them to come out strong from even a recession.
This means that even during another financial downturn, you’re unlikely to see your shares fall back to these lows we’re experiencing. That makes them a huge deal. You can bring in a dividend that provides far more bang for your buck.
While all the banks are strong, the one I would consider first these days is Canadian Imperial Bank of Commerce (TSX: CM).
Creating income from CIBC
CIBC stock is a solid option for those seeking the security of banks on the TSX today with their tax refund. Plus, you’ll also get the additional passive income that comes with it. Shares are down 17.8% in the last year, making it a huge deal. And when you ask why CM stock is so low, that’s because it has the most exposure to the Canadian market, including housing.
While this doesn’t bode well right now, it will rebound once more as it has done downturn after downturn. This means you can bring in a higher-than-usual 5.45% dividend yield as of writing! This comes out to $3.40 per share annually, dished out on a quarterly basis.
Given that CIBC stock is down so low, and trades at just 12.4 times earnings, it’s a great time to put your tax refund to work. Create that emergency fund, and you’ll be soaring out of 2023 and beyond in no time.
