With income tax season well underway, BMO Financial Group has some suggestions for the millions of Canadians eagerly awaiting their tax refund.

Last year, the average Canadian got back approximately $1,400 on their 2008 income taxes.

Tina Di Vito, director, retirement strategies, BMO Financial Group, offers the following advice on how to make the most efficient use of your 2009 tax refund:

“Maximizing your 2010 income tax refund by contributing to your RRSP this year is always a good option,” says Di Vito.

“However, depending on your personal situation, there may be several ways to make the most efficient use of the money you get back. Meet with a financial planner to determine the best approach for you.”

Pay down RRSP loans

If your clients took out an investment loan to maximize your RRSP contribution and generated a larger refund, they should use their tax refunds to pay down the loan.

Pay down credit card debt

High interest on some credit cards can eat away atsavings. Clients can reduce the cost of credit by using their tax refund to reduce or pay down their credit card balances, targeting the highest rates first and transferring the balances to a lower rate credit card.

Lump sum mortgage payment

For clients with mortgages, it may be good idea to use their tax refund to make a lump sum payment. Applied directly to the principal, a lump some payment could save clients thousands of dollars in interest costs over the life of the mortgage.

Top-up a TFSA

Clients who are not carrying any extra debt can contribute to a Tax-Free Savings Account (TFSA) to let them grow their money tax free. Even those clients who maxed out their TFSA contribution in 2009 have room for an additional $5,000 this year.

Save for education

Saving for a child’s education can be an expensive thing. Contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children’s future. Clients with children should consider opening an RESP using their income tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. By maximizing contributions every year, clients could earn up to $7,200 in grants for every child.

IE