Everything You Need to Know About Tax Refunds - and Five Smart Ways to Use Yours

Michael Callahan, CFP®, CIM®

If you've received a tax refund this year, you may be wondering what to do with the money. Before we get into that, let's first ask: 

What is a tax refund?

You receive a tax refund if you've paid too much tax throughout the year. The refund is essentially a reimbursement of the excess amount you've paid. While getting a refund often feels good, it means you've overpaid and essentially given the government an interest-free loan all year. This typically isn't an optimal strategy, receiving a tax refund often brings a smile to our faces as it feels like 'found' money that wasn’t previously in the budget.

Overall, the Canadian government paid out $40 billion in refunds to 17.3 million Canadians from February 7, 2026, to May 19, 2026. During that period, the average income tax refund was $2,000.

The Canada Revenue Agency (CRA) indicates that for returns filed before the due date, their goal is to send you a notice of assessment as well as any refund owed to you within two weeks when you file online, and within eight weeks when you file a paper return.

If you've received an income tax refund this year, here are five smart strategies to consider for your tax refund.

How long does it take to get a tax refund?

How you file your return affects when you get your refund. For income tax returns filed electronically, CRA indicates a service standard to issue your notice of assessment within 2 weeks of receiving your return and any required supporting documents. If you filed a paper return, that timeframe is increased to 8 weeks. The CRA indicates that this is a targeted timeframe for straightforward returns. For more complex returns, and during peak processing times, you may experience additional delays in processing time.

The best way to stay informed is to check the status of your return in your CRA account. You can view the status of your return using the progress tracker in your CRA account.

How do you calculate your tax refund?

To calculate your tax refund, first determine your total income – this is the sum of all income you've received throughout the year from all sources such as employment income, investment income, pension income, etc. Next, subtract any relevant deductions such as RRSP contributions, child support payments, etc. The result is your taxable income. Next, depending on your province or territory of residence, you apply the relevant federal and provincial/territorial tax rates to determine the amount of tax owing. The next step is to then apply any tax credits such as the basic personal exemption, medical expenses, etc. The result is your tax owing. You receive a tax refund if the total tax deducted from your pay throughout the year is greater than this amount.

1. Pay down debt

In today's high-interest rate environment, carrying debt can be both expensive and stressful. This is especially true for high-interest debt, such as credit card debt. Using your tax refund to pay down debt can help reduce your monthly debt payments and save you a significant amount of interest. Check out our article on strategies to pay down debt for more information.

2. Build an emergency fund

We recommend having three months’ worth of expenses readily available in the event of an emergency. Without sufficient cash readily available, you might be forced to dip into your long-term investments or borrow to cover an unexpected expense. Establishing an emergency fund can help you avoid this problem. Visit our page on building your emergency savings to learn more.

3. Boost your retirement savings

Contributing your tax refund toward your retirement is a great way to boost your retirement savings and can really pay off in the long run. This is especially true if you have an employer matching program. Furthermore, contributing to an RRSP can result in an even larger tax refund to supercharge your retirement savings. Speak with an Edward Jones advisor to find out how a financial advisor can help determine the best retirement strategy for you. In the meantime, if you're trying to decide where to invest, consider our article on RRSP or TFSA: Which one makes sense for you?

4. Save for a down payment. 

Saving your tax refund for a down payment on your first home can be a great way to make the goal of home ownership one step closer to reality. The new First Home Savings Account (FHSA) can help you save for your first home and includes some significant tax-advantages, too. To find out more, check out page on What You Need to Know About the FHSA.

5. Contribute to education savings

If you plan to support a child’s education, a lump sum payment to a Registered Education Savings Plan (RESP) could result in a savings boost due to an eligible matching grant from the government. To find out more about RESPs, including key features and benefits, types of plans, and rules for contributions and withdrawals, visit our page on Registered Education Savings Plans (RESPs).

How we can help

Whatever strategy you choose, consult with an Edward Jones financial advisor to help you weigh your options and choose a course of action that works best for you.