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Now that your clients are focused on filing their taxes, it might be time to consider what they should do with their tax refund. RRSP contributions, credit card balance reduction and effective management of mortgages are but a few ways to maximize tax returns.

A report from BMO says that in 2009, Canadians on average received a tax refund of approximately $1,400 on their 2008 income taxes. More than 10 million Canadians have either recently filed their tax returns or are in the process of doing so. They are eagerly looking forward to their tax refund.

“Maximizing your 2010 income tax refund by contributing to your RRSP this year is always a good option,” says Tina Di Vito, director, retirement strategies, BMO Financial Group. “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.”

Di Vito offers five effective ways to help them make the most efficient use of 2009 tax refund.

Pay down RRSP loan Those who have taken out an RRSP loan to maximize their RRSP contribution and generate a larger refund should use their tax refund to pay down the loan.

Pay down credit card debt High interest on credit cards can swallow your savings. The cost of credit can be reduced by using the tax refund to reduce or pay down credit card balances, targeting the highest rates first and transferring the balances to a lower rate credit card.

Lump sum mortgage payment Tax refunds can be used to make a lump sum payment toward the principal of a mortgage, which could save thousands of dollars in interest costs over the term of the mortgage.

Top-up TFSA Contributing to a Tax-Free Savings Account (TFSA) allows money to grow tax free. For those who maxed out their TFSA contribution in 2009, there is room for an additional $5,000 for 2010.

Save for education RESP contributions can reduce some of the pressure parents feel when planning for their children’s future. Opening an RESP using income tax refund is a good option. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. Maximizing your annual contributions could earn you up to $7,200 in grants for every child.

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Fund industry vital to Ontario: IFIC

The Investment Funds Institute of Canada (IFIC) has issued a release, saying it is encouraged by the Ontario government’s acknowledgement that the financial services sector is a key contributor to growth and job creation.

IFIC president and CEO Joanne De Laurentiis points out that the mutual fund industry employs more than 90,000 Canadians, both directly through fund management companies and fund dealers and indirectly, through back office staff, researchers and administrators.

“By investing in and distributing holdings in Canadian companies broadly among Canadians, the mutual fund industry contributes directly to the health of our domestic economy,” says De Laurentiis. “In particular, mutual funds are a key source of investment capital for Canada’s small business sector.”

She points out there are more than 830 mutual funds that invest directly in the Canadian economy. Those funds account for more than $375 billion in assets.

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Commodities retreat in February

The four month long rally in commodities has suffered a setback, as Scotiabank’s Commodity Price Index slipped 0.7% in February, but the decline in the overall index masks some pockets of strength.

“Financial market concern over sovereign debt risks in Greece, Portugal and Spain reduced investor risk appetite in early February, leading to a shift to ‘safe-haven’ U.S. dollar Treasury securities and temporarily pushing down dollar-denominated commodity prices,” said Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank.

The metal and minerals Index posted a decline of 3% from January’s values, led by base metal, gold and silver prices. The good news is that these values have “snapped back” in March and should boost that month’s reading.

“Scotiabank’s Commodity Price Index will receive a big boost in April, as contract prices for coking coal from Western Canada to Japan are adjusted up, following annual negotiations,” said Mohr.

Coal prices benefited from cyclone damage at an Australian port, which choked off the supply from the world’s largest coking coal exporter. Japanese steel makers have agreed to a 55% increase in the price for Western Canadian hard coking coal, and iron ore values are expected to follow suit.

“Canadian iron ore producers will also enjoy huge price gains in 2010, judging from annual contract negotiations now underway between Australian and Brazilian miners and steel makers in Asia and Europe,” Mohr said. “Prices will be driven up by recovering steel production and iron ore demand in the G7 as well as steel mill capacity expansion in China.”

The energy sector was in retreat in February, as Scotiabank’s oil and gas index fell 4.5%. But again, Mohr sees reason for hope.

“Despite climbing a wall of worry over prospects for global economic recovery, world oil demand is growing again,” she said. “While China remains the growth leader, U.S. consumption also picked up in February.”

The forestry sector bucked the trend set by mining and energy, with the forest products index gaining 8.1%, as American retailers are restocking their shelves ahead of the spring renovation season.

(03/29/10)