How to Invest Your Tax Refund in XEQT: A Canadian's Guide to Making CRA Money Work

There is a certain kind of thrill that comes with checking your bank account and seeing a surprise deposit from the CRA. You filed your taxes a few weeks ago, maybe grumbled through the process, and then — ping — a direct deposit notification. Suddenly you have an extra $1,500, $2,100, or maybe even $4,000 sitting in your chequing account.

And the temptation hits immediately.

New patio furniture. A weekend trip to Montreal. That jacket you have been eyeing for months. A really nice dinner out. Your brain starts spending the money before you have even finished reading the deposit notification.

I get it. I have been there. A few years ago, I got a $2,400 refund and immediately started browsing flights. It felt like free money — like the government was giving me a bonus just for existing. But here is the thing: your tax refund is not free money. It is your own money coming back to you. And how you handle it in the next 48 hours could be worth tens of thousands of dollars to your future self.

This guide is going to walk you through exactly how to take that refund and turn it into real, lasting wealth by investing it in XEQT (iShares Core Equity ETF Portfolio) — the all-in-one, globally diversified ETF that makes investing stupidly simple for Canadians.

1. The Average Canadian Tax Refund (And What Most People Do With It)

According to CRA data, the average Canadian tax refund has historically hovered around $2,100. Some years it is a bit higher, some a bit lower, but that is a solid ballpark. If you have RRSP contributions, tuition credits, childcare deductions, or work-from-home expenses, your refund could easily be higher.

Here is what most Canadians do with their refund:

• Pay down debt — a solid choice if it is high-interest
• Put it in a savings account — where it earns next to nothing and slowly gets nibbled away by inflation
• Spend it — the most common outcome, and the most expensive long-term decision
• Invest it — what a small but growing number of Canadians are doing

A 2023 survey by BMO found that the majority of Canadians plan to use their refund for savings or debt repayment, but a significant chunk admitted they would spend at least part of it on something discretionary. Nothing wrong with treating yourself occasionally — but when “occasionally” happens every single year, the opportunity cost adds up fast.

Let me show you just how fast.

2. The Opportunity Cost of Spending Your Refund

This is where things get real. Suppose you receive a $2,100 refund every year. You have two choices: spend it, or invest it in XEQT. Assuming a long-term average annual return of roughly 8% (which is reasonable for a globally diversified all-equity portfolio like XEQT over long periods), here is what happens:

Read that 30-year number again. $236,115 — from doing nothing more than investing your tax refund each year in a single ETF and leaving it alone. You contributed $63,000 of your own money. The other $173,115 is pure compound growth. That is your money making money, which then makes more money.

Now compare that to 30 years of spending $2,100 on things you probably cannot even remember. That is the real cost of the jacket, the weekend trip, and the patio furniture — not their sticker price, but the $173,115 in growth you gave up.

If that table does not change how you think about your next tax refund, nothing will.

3. Where to Put Your Refund: TFSA vs RRSP vs FHSA

Before you invest a single dollar, you need to decide which account to put it in. This decision matters more than most people realize, because the right account can save you thousands in taxes over your lifetime.

Here is a simple decision framework:

TFSA First (For Most People)

The TFSA is usually the best first stop for your tax refund. Here is why:

• All growth is completely tax-free — dividends, capital gains, everything
• Withdrawals are tax-free — you can pull money out anytime without penalty or tax
• Contribution room comes back — if you withdraw, you get that room back the following year
• No impact on government benefits — TFSA income does not affect your OAS, GIS, or CCB

If you have unused TFSA contribution room (and many Canadians have tens of thousands of unused room), this is almost always the right answer. The 2026 annual limit is $7,000, and if you have been eligible since 2009 and never contributed, your cumulative room is over $100,000.

Bottom line: If you have TFSA room and no high-interest debt, put your refund in your TFSA and buy XEQT. Done.

RRSP If You Are In a Higher Tax Bracket

The RRSP becomes more attractive when your marginal tax rate is high — generally if your income is above $55,000 or so, depending on your province. The reason is simple: you get a tax deduction on RRSP contributions, which means contributing your refund today generates another refund next year.

This creates a powerful compounding loop called “refund recycling,” which I will break down in detail in the next section.

The RRSP is especially compelling if:

• Your current tax bracket is significantly higher than what you expect in retirement
• You have already maxed your TFSA
• You want to use the Home Buyers’ Plan (HBP) to withdraw up to $60,000 tax-free for a home purchase

FHSA If You Are a First-Time Home Buyer

The FHSA is the newest registered account in Canada, and it is a powerhouse for first-time home buyers. It gives you:

• RRSP-like tax deductions on contributions (up to $8,000/year, $40,000 lifetime)
• TFSA-like tax-free withdrawals when you buy your first home
• The best of both worlds — no other account does this

If you are saving for your first home and have not opened an FHSA yet, your tax refund is a perfect excuse to start one. You can invest in XEQT inside the FHSA for growth while you save toward your down payment.

The Quick Decision Tree

For a deeper comparison, check out our guide on TFSA vs FHSA vs RRSP priority.

4. The Refund Recycling Strategy (The RRSP Power Move)

This is one of the most underrated strategies in Canadian personal finance, and your tax refund is the perfect way to kickstart it.

Here is how it works:

Step 1: You receive your tax refund (say, $2,100).

Step 2: You contribute that $2,100 to your RRSP and invest it in XEQT.

Step 3: Because RRSP contributions are tax-deductible, that $2,100 reduces your taxable income. If your marginal tax rate is 30%, you get a new tax refund of roughly $630 the following year.

Step 4: You take that $630 refund and contribute it to your RRSP too.

Step 5: That $630 contribution generates another refund of about $189 the next year.

Step 6: You invest that too. And the cycle continues.

A Multi-Year Refund Recycling Example

Let’s walk through what happens if you do this every year for five years, starting with a $2,100 refund and a 30% marginal tax rate. We will assume each year you receive your regular $2,100 refund PLUS the recycled refund from the prior year’s RRSP contribution:

By Year 5, you are investing nearly $3,000 per year instead of the original $2,100 — a 43% increase in annual investment, powered entirely by the tax system. And every dollar of that is compounding inside your RRSP in XEQT.

Over 20 or 30 years, the difference between investing $2,100/year and $3,000/year is enormous. The refund recycling strategy effectively turns the government’s tax deduction into a permanent raise on your investment contributions.

The catch: You will eventually pay tax when you withdraw from your RRSP in retirement. But if your retirement tax rate is lower than your working-years rate (which it is for most people), you come out well ahead. And the extra years of compounding on the recycled refunds more than make up for the eventual tax bill.

5. Should You Lump-Sum Invest Your Refund or Dollar-Cost Average It?

You have your refund. You have chosen your account. Now the question: do you invest it all at once, or spread it out over several months?

The research is clear on this one. Lump-sum investing wins approximately two-thirds of the time compared to dollar-cost averaging. The reason is simple: markets go up more often than they go down, so every day your money sits on the sidelines, you are statistically more likely to miss gains than avoid losses.

For a typical tax refund of $1,000 to $5,000, the answer is even more straightforward: just invest it all at once. The potential difference between lump sum and DCA on these amounts is relatively small in dollar terms, and the mental energy of trying to time your entry is not worth it.

That said, if investing the full amount all at once makes you anxious — if you know you will panic and sell if the market drops 5% the day after you invest — then splitting it into two or three chunks over a few weeks is perfectly fine. The best strategy is the one you will actually follow through on.

For a deeper dive, check out our full guide on lump sum vs DCA for XEQT.

6. Step-by-Step: How to Invest Your Tax Refund in XEQT on Wealthsimple

Here is exactly how to go from CRA deposit to invested-in-XEQT, step by step. The whole process takes about 15 minutes if you already have an account, or about 20-30 minutes if you are starting from scratch.

If You Are New to Wealthsimple

1. Open a Wealthsimple account using this link to get a $25 bonus toward your first investment
2. Choose your account type — select TFSA (usually the best starting point), RRSP, or FHSA based on the framework in Section 3 above
3. Verify your identity — you will need your SIN, a government-issued ID, and basic personal information
4. Link your bank account — connect your chequing account for deposits and withdrawals
5. Deposit your tax refund — transfer the amount from your bank. Wealthsimple’s Instant Deposit feature lets you invest up to $1,500 immediately (or more with a premium plan), while the rest settles in 1-3 business days

Buying XEQT

1. Search for XEQT — in the Wealthsimple app or website, search for “XEQT” or “iShares Core Equity ETF Portfolio”
2. Tap “Buy” and enter the dollar amount you want to invest (you can buy fractional shares on Wealthsimple, so you do not need to round to a whole share price)
3. Confirm the purchase — review the details and confirm. There are zero commissions on Canadian ETFs
4. That is it. You now own a piece of over 9,000 companies across 49 countries

Set Up Recurring Contributions (The Most Important Step)

Do not stop at investing your refund. The real magic happens when you automate your ongoing investing so you never have to think about it again:

• Set up a recurring deposit from your bank account (weekly, biweekly, or monthly — whatever aligns with your pay schedule)
• Enable recurring buys for XEQT so your deposits are automatically invested
• Even $50 or $100 per paycheque adds up dramatically over time

For a complete walkthrough on automation, check out our guide on how to automate XEQT on Wealthsimple.

7. The Anti-Refund Argument: Should You Reduce Your Withholding Instead?

Here is a counterintuitive idea that seasoned personal finance people love to talk about: maybe you should not be getting a tax refund at all.

Think about it. A tax refund means you gave the government an interest-free loan for up to 12 months. That $2,100 refund you received in April? You overpaid your taxes by about $175 per month throughout the previous year. If that $175 per month had been in your pocket — and invested in XEQT — you would be slightly further ahead because your money would have been working for you all year instead of sitting in the CRA’s coffers.

How to Reduce Your Withholding with Form T1213

The CRA allows you to request reduced tax withholding at source by filing Form T1213 (Request to Reduce Tax Deductions at Source). If you make regular RRSP contributions, have significant childcare expenses, or claim other predictable deductions, you can ask the CRA to tell your employer to withhold less tax from each paycheque.

Here is the process:

1. Download Form T1213 from the CRA website
2. Fill it out with your expected deductions for the year (RRSP contributions, childcare, etc.)
3. Submit it to your local CRA tax services office (you can mail it or submit through My Account in some cases)
4. Wait for approval — the CRA will review and send a letter to your employer authorizing the reduced withholding
5. Your paycheques get bigger — instead of a $2,100 lump sum in the spring, you get roughly $175 more per month all year long

What to Do With the Extra Money

The key — and this is absolutely critical — is that you must actually invest the extra money. If bigger paycheques just mean more spending, you are worse off than you would have been with the refund.

The best approach:

• Set up an automatic recurring buy of XEQT on Wealthsimple for the amount of your monthly tax savings
• This way, you are dollar-cost averaging into XEQT throughout the year instead of making one lump-sum investment
• Your money is working for you from day one instead of sitting with the CRA

Is the T1213 Actually Worth It?

Honestly? For most people, the mathematical advantage is small. On a $2,100 refund, the difference between investing monthly throughout the year versus a single lump sum in April amounts to a few dozen dollars in extra returns. It is not nothing, but it is not life-changing either.

The real question is one of behaviour and discipline:

• If you are the type who will diligently auto-invest the extra $175/month — the T1213 is a smart move
• If you know deep down that the extra money will just vanish into daily spending — keep getting the refund and invest it as a lump sum each spring
• There is no shame in using the refund as a “forced savings” mechanism. The best strategy is the one that gets your money invested

8. What NOT to Do With Your Tax Refund

Let me save you from some common mistakes I have seen (and, in some cases, made myself):

Do not leave it in a savings account “temporarily”

Temporary has a funny way of turning into permanent. If your refund lands in a savings account earning 2-3%, and you tell yourself you will invest it “when the market dips” or “once things settle down,” you are going to be waiting a long time. The cost of waiting to invest is real and well-documented. Markets do not care about your timeline.

Do not try to pick individual stocks with it

Your tax refund is not play money for stock picking. Putting $2,100 into a single stock based on a tip from Reddit or your coworker is gambling, not investing. XEQT gives you instant diversification across 9,000+ companies — that is the opposite of putting all your eggs in one basket.

Do not use it for crypto speculation

I know, I know. But it needs to be said. Your tax refund is real money that you earned. Putting it into a volatile, speculative asset because someone on social media posted a chart going up is not a wealth-building strategy. If you want crypto exposure, XEQT’s underlying holdings already include companies that benefit from blockchain technology.

Do not pay off low-interest debt when you could invest instead

If you have a mortgage at 4-5% or a student loan at prime, the math often favours investing over aggressive repayment — especially in a tax-advantaged account. A globally diversified equity portfolio like XEQT has historically returned 8-10% annually over long periods. Of course, if high-interest debt (credit cards, payday loans) is weighing you down, absolutely pay that off first.

Do not overthink the timing

“Should I wait for a pullback?” No. “The market is at all-time highs, should I wait?” No. “What if there is a recession?” Invest anyway. The best time to buy XEQT is almost always “now,” because time in the market beats timing the market over and over again.

9. Your Future Self Will Thank You

I want you to try a quick mental exercise. Picture yourself 20 years from now. You are older, hopefully a bit wiser, and looking at your investment portfolio. In one version of reality, you spent every tax refund you ever received — nice dinners, gadgets, vacations you barely remember. In the other version, you invested each refund in XEQT.

The difference between those two versions of your life is not just $96,076 (though that is the 20-year number from the table above). It is the freedom that money represents. It is the ability to retire a year or two earlier. It is the buffer that lets you take a risk on a career change. It is the peace of mind of knowing you have a real financial cushion.

And it all started with one decision, made one time, with one tax refund.

Here is what I would do if that CRA deposit just hit your account:

1. Decide on the account — TFSA if you have room, RRSP if you are in a high bracket and want refund recycling, FHSA if you are buying a first home
2. Open a Wealthsimple account (or log into your existing one) and deposit the refund
3. Buy XEQT with the full amount — do not overthink it, do not wait
4. Set up automatic contributions so this is not a one-time event but the beginning of a habit
5. Close the app and go live your life — the compound interest will take it from here

Your tax refund is not a windfall. It is not a bonus. It is your own money, returning to you with a question: what are you going to do with me?

Make the answer something your future self will be proud of.