How to Make the Most of Your Tax Refund in Canada (2025) — and Should You Use a TFSA or RRSP?

Every spring, I start hearing the same two questions from many people:

"I’m getting a tax refund — what should I do with it?"

and

"Is a TFSA or RRSP better for me right now?"

This year is no different. With many Canadians receiving sizable tax refunds — often due to tuition credits, family deductions, or business expenses — it’s the perfect time to make a smart plan for that money.

Typical refund amounts can range quite a bit depending on your situation: from $2,000–$3,000 for young professionals, to $5,000–$8,000 for mid-career families, and $5,000–$15,000 (or higher) for business owners.

So — how can you make that money work harder for you?

1️⃣ Pay Off High-Interest Debt First

Before thinking about savings or investing, take a close look at your debts.

Example: If you’re getting a $2,500 refund and carrying $1,200 in credit card debt at 19%, paying that off first will save you hundreds in future interest — a guaranteed return no investment will easily match.

Once high-interest debt is cleared, many people also choose to make an extra lump-sum mortgage payment. Even if your mortgage rate is 5–6%, every extra dollar reduces your principal and the compounding interest you’ll save over time — providing both financial value and peace of mind.

2️⃣ TFSA vs. RRSP — Where Should You Put the Rest?

Here’s a quick side-by-side comparison:

3️⃣ Which Should You Prioritize?

Here’s what I typically advise — though it’s always best to tailor your strategy to your specific life stage and goals:

🎓 Young Professionals (earning under ~$60K, $2K–$3K refund)

Prioritize your TFSA. Your income — and tax bracket — will likely rise over time, making RRSP contributions more valuable later. Plus, TFSA savings remain flexible for future needs: home down payment, education, or investing.

👨‍👩‍👧‍👦 Mid-Career Canadians with Families (~$80K–$120K household, $5K–$8K refund)

RRSP contributions can provide tax savings now and may increase benefit payouts (such as Canada Child Benefit). Keeping some funds in a TFSA is also smart to cover family expenses and maintain flexibility.

🚀 Micro Business Owners ($5K–$10K refund) & Small Business Owners ($10K–$15K+ refund)

A balanced approach works best. Many business owners split refunds to:• Pay off business debt• Top up TFSAs for liquidity• Contribute to RRSPs to manage taxable income

Tip: If you’re planning to take on new debt (such as a mortgage), prioritizing TFSA contributions can help keep funds accessible and improve lending flexibility.

4️⃣ How to Check Your Contribution Room

• CRA My Account — for both TFSA & RRSP

• Notice of Assessment — for RRSP contribution room

Your TFSA room grows each year and carries forward. RRSP room is based on 18% of your prior year's earned income.

Final Thoughts — Why Professional Advice Pays Off

One of the most common mistakes I see is trying to follow generic advice — without adjusting for your specific situation.

Your income, debt levels, life stage, family needs, and future plans ALL affect the smartest way to use your tax refund.

With over 7 years of experience in financial services, I’ve helped thousands of clients create clear, personalized strategies that align with their unique goals.

If you’re unsure what to prioritize — or if you’re feeling stuck about your next financial steps — now is a great time to get clarity.

I invite you to book a free and fully personalized Unlock Your Financial Potential session — where you’ll speak directly with me. In this private 60-minute conversation, we’ll explore YOUR unique financial picture together, so you can move forward with confidence and a clear, personalized plan.

👉Book your session here https://www.binishagiri.com/booking-calendar/unlock-your-financial-potential

Your tax refund is an opportunity — let’s make the most of it.