Most taxpayers aim to make the most of their available tax deductions, but how many of us give much thought to maximising our tax refund when it arrives? The average tax refund in 2016 was $2300i, enough to make a real difference if used wisely.
And it seems many of us do just that. An ASIC poll found 29 per cent of people used the money to pay bills, 21 per cent saved it, 13 per cent paid down their credit card or a personal loan and nine per cent put it on their mortgage. But there were also a few party animals who used it to celebrate.i
Here are some suggestions to help you make the most of your tax refund.
1. Pay off debt
Credit card debt attracts high rates of interest, so it makes good sense to reduce it whenever possible. The issue, however, is that many credit card users lack the self-discipline to stay out of the red for any length of time. So if you do put, say, $2000 on your credit card, consider also lowering your credit limit by $2000. If you’re free of pressing credit card debt, the next best financial return on your tax return is often to reduce your mortgage. That $2000 put into your mortgage account now can end up saving you ten times as much over the life of your home loan.
2. Monetise your underemployed assets
Thanks to the wonders of the digital age, it’s never been easier to go into business. Paying someone to clean out and repaint the spare room can mean you’re able to rent it for upwards of $100 a night on Airbnb. Upgrading your car may allow you to rent it out when you aren’t using it, on one of several car sharing platforms. And that hobby, be it making jams and pickles or assembling model aeroplanes, can now be turned into cash if you pay someone to set up a website for you.
3. Expand your skill set
In a fast changing world, people who are willing to adapt and learn new skills will thrive. There are thousands of courses – covering everything from social media marketing to foreign languages to business law – available online or at bricks and mortar colleges. These can teach you a valuable new skill and possibly launch you on a whole new career.
4. Improve your health
Few things will impact your earning capacity and quality of life like a serious illness. Spending money on a gym membership, yoga classes, seeing a nutritionist or taking a much-needed holiday should improve both your health and happiness levels. Incidentally, a pack-a-day smoker spends around $6500 a year on their habitii. So investing a few hundred dollars on programs and products to quit offers a massive return on investment, especially as the price of cigarettes could soon double.
5. Save for a rainy day
Granted, you won’t currently get much return by depositing your refund in a savings account. Nonetheless, it’s hard to put a price on the sense of security that comes with knowing you’ve got a rainy day fund to fall back on should you get sick, lose your job or need urgent repairs to your roof. Or you could keep your emergency cash in your mortgage offset or redraw account and reduce your interest payments at the same time.
6. Boost your super
Despite the post-Budget headlines, superannuation remains the most tax-effective retirement savings vehicle in the land. So if you have not already reached your lifetime non-concessional contributions limit of $500,000 consider putting your refund to work for your retirement.
If you’re not sure you’ll be able to delay gratification once your tax refund arrives, you can always compromise and indulge your present self while assisting your future self. How? Invest most of your refund for the longer term and use the balance to buy that set of golf clubs or designer label dress you’ve been lusting over.
i Moneysmart, https://www.etax.com.au/average-tax-refund-sept-12/