Are you wondering what to do what your tax refund? Maybe you can try something new that could make you more financially comfortable.
This year, before you race off to the shops on a spending spree or make a spur of the moment purchase, you could consider a few smarter ways to take this year’s tax refund and put it to work for you. As Australia’s biggest online tax agent service, we hear from lots of Australians (and accountants) about ways they plan to spend their tax refund. Here are a few of their ideas.
1. Super contribution top-up
According to ASIC, a single person who retires at 65 with a ‘modest’ lifestyle (with annual living expenses of about $23,000) will need $300,000 in today’s money to retire. Those who want a ‘comfortable’ lifestyle (with living expenses of $41,830 per year) will need at least $544,000 to retire.
For most of us, those are some big numbers. Boosting your super early-on means there’s more time for your super fund to grow.
Just contact your superannuation fund or advisor for advice and to learn how to transfer your 2016 tax refund into your super fund – your “future self” will thank you when you retire!
2. Buy work related equipment items that cost over $300 now, for a better deduction on next year’s return
If you’ve been holding off on purchasing any big-ticket work related items like computers, tools and work equipment, using your 2016 tax refund could be a good option.
Work related items that cost you more than $300 need to be depreciated over the “effective life” of the item. If you buy these items at the end of a financial year, the benefit on your next tax return will be very small. But if you buy the item early in the year – July or August – your depreciation calculation will cover more time and this means a bigger deduction on your next tax return. Your tax agent can help make that simple for you.
3. Try a micro-investment
Many Australians are interested in investing but aren’t sure how to start or can’t commit large amounts of money for buying shares. That’s why micro investing is an interesting new option.
For people looking to dip their toe into investing, investment providers like Acorns Australia let you gradually invest small amounts of money into your own investment account. Acorns then invests your money in a diversified portfolio with the aim of growing your investment nest egg.
George Lucas, Managing Director at Acorns Australia, told us, “There has been a huge interest from the Australian market with over 85,000 signups for the app.”
“The app is perfect for those who know little about investing or don’t know how to start. Later on, you can withdraw some of your money, or all of your money, any time you like. It’s a simple way to play with a little bit of investment and see if it works for you.”
4. Save your tax refund in a term deposit for your children
You could set aside your tax refunds to cover future big-ticket expenses for your children. You can pop your refund into a lengthy term deposit at your bank and earmark it for their university education, or their first car.
When your children are older, you can give them a good leg-up without a hard hit to your wallet.
5. Pay off credit card debt or loans
Do you have a credit card debt or a personal loan you seem to be paying off forever?
Consider using your tax refund to lower your credit card debt or pay it off. Your interest repayments will drop as soon as you lower your outstanding balance and once you’re debt free, you can start using your money for you, rather than contributing to the bank’s profits by paying credit card interest repayments.
6. Put your tax refund into a mortgage offset account
If you’ve got a mortgage, it’s likely your mortgage provider offers a mortgage offset option.
A mortgage offset is essentially a savings account where, instead of receiving interest on your savings each month, your offset account balance is subtracted from your outstanding mortgage loan balance just for the purpose of calculating the interest component of your mortgage payment.
This means you’ll end up paying less interest on your mortgage, leaving more money in your pocket and helping you pay your home loan off more quickly (while your offset account balance is still free for you to use, if you need it).
By Simone Gielis, Senior Tax Agent and General Manager at Etax.com.au
This article is of a general nature only. Individuals deciding what to do with their tax refund or savings should consult a financial advisor for specific advice relevant to their own situation.
Before proceeding with any type of investment or savings option you should read the relevant product disclosure statement and consult an advisor as needed to determine whether the investment or service is right for you.
Etax.com.au is Australia’s number one online tax agent service. Specialising in online taxes since 1998, etax.com.au enables most Australians to complete their tax return in under 15 minutes. Each tax return is checked twice by qualified accountants for accuracy and extra deductions prior to lodgement, offering a higher level of support and expertise than most tax agent offices plus the time-saving convenience of a 100% online service with help and support features. The ATO indicates that 74% of Australians use a tax agent service, such as etax.com.au.