[Updated May 30, 2023]
Did you know that the average tax refund in Australia is a little over $2,933? While you may not reach this amount, it’s nice to know that taxpayers like you have the opportunity to get extra cash by the end of the financial year. Not everyone is fond of doing their tax return because it does take time and effort. But perhaps knowing that you can earn almost $3,000 in refund may encourage you to ensure you get the refund you’re entitled to.
According to the Australian Taxation Office, almost 11 million individuals (out of 14+ million taxpayers) were given an average of $2,829 in refunds, totalling more than $30 billion. And if you’re among those expecting some money back this year, what do you plan to do with it? It’s anticipated that at least 10 million will receive $1,080 this year.
If you have not decided on how you will spend your tax return yet, you can take advice from our experts here at TaxReturn.com.au. Here are our recommendations:
Smartest Ways to Use Your Tax Refund:
- Pay Your Debts
- Buy Equipment Related to Your Job For More Deductions Next Financial Year
- Buy Something That Makes You Happy
- Buy Something You Really Need
- Try Your Luck with Investments
- Get Life Insurance
- Pay It Forward and Donate To a Charity
- Start a Business
- Create an Emergency Fund
- Make Home Improvements
- Increase Your Superannuation Funds
- Invest in Yourself
- Save the Money for Your Child or Grandchild’s Education
- Save for a House Deposit
- Refinance Your Mortgage
- Save The Money
- Invest in Tax Advice from Real Experts
Pay Your Debts
The first thing that you should do is to pay down any debt that you may have. It’s great to see many Australians being more careful with their money, notably their savings. The rates have gotten relatively high, prompting quite a number of citizens to focus on paying down their debts.
Think about it; interest rates are at record lows. If you put $1,000 from your refund to your mortgage, it will go much further towards the principal debt payment today than a few years back. And if you have expensive debts, such as car loans and credit cards, it’s time to put more effort into clearing them out.
Many people don’t know this, but you can actually pay a full and final settlement with a credit card company. Take the opportunity to pay less than what you owe in total. For instance, if you received $2,000 in tax refunds, you can use it to pay down $3,000 of your credit card debt. Negotiate with your credit card company, which may let you do the settlement because of your lump-sum payment.
Buy Equipment Related to Your Job For More Deductions Next Financial Year
Electronics indeed depreciate in value as time passes. However, you can benefit from purchasing computers and tools if they are related to your work.
If they cost more than $300, the refund will be depreciated over the life of the item. But instead of buying them at the end of the year, make the purchase around July or August, which will cover more time and therefore give you a bigger deduction during tax time.
You can check our tax return checklists to see how you can get a refund on your equipment purchases based on your industry.
Buy Something That Makes You Happy
You earned it, so you can spend it the way you want. Please note that this advice does not mean you should go on a shopping spree. But if you’re relatively free from any debt and you have some money to cover your cost of living, you can put some of the cash towards your financial goals. It can be anything from a car payment deposit or even payment for the rent you’re behind on. Perhaps you need a new party dress or even a pair of shoes.
It may be time to update your laptop or even a simple medical procedure. You can turn to your tax refund to help you pay for any expense. Or you can use it to buy what you have always wanted to purchase.
Buy Something You Really Need
It is easy to get tempted to buy something lavish with the extra money you have. However, if you plan to spend it smartly, you should make sure the purchase is worth your while.
For instance, if you have a problem with your car, you may want to use the money to have it checked and fixed. Perhaps you put off essential dental work because you were short on funds. Now is the best time to use the money that will truly benefit you. Deal with the essentials first once you collected the refund.
Try Your Luck with Investments
As mentioned, the interest rates are at an all-time low. This situation is excellent for people who have debts to repay. Still, it’s not necessarily good for those who want to earn through their savings account. Many wise Aussies have actually shifted their interest in keeping their money from banks to the investment market.
If you have not tried investing yet, now may be the right time to do so. Instead of choosing to have your money in term deposits, you may want to invest in a product with a much higher return. Some people may tell you to try cryptocurrency, which is exceptionally profitable yet risky. We suggest that you learn how cryptocurrency works in Australia first before getting into this form of investment.
Using your tax refund money, invest in businesses that you know are thriving. You need to be more resourceful in this regard. But it’s easy to find out which companies are good for new investors like you. If you have no idea where to put your money, think about where you usually spend your money, especially on a daily basis. Chances are, those shares are at the top of the stock exchange lists. Another suggestion that you may want to consider is a business you have had a good experience with as a customer. It may exactly be where you should start your share portfolio.
For a trusted area to invest in, try the energy sector, which has always been strong in the Australian market for several decades now. Other areas you may want to look into are leisure, travel, and tourism, which are industries that are currently performing well despite some setbacks.
Get Life Insurance
Cover your bases by purchasing life insurance if you haven’t already. Having life insurance is a way to take care of the people you love. If you already have life insurance, you can use the refund to fill in any payment gaps you may have.
Sure, it is not fun to think about what could happen if you are no longer around, but it is a reality of life. It is also helpful to have the right or suitable amount of protection ready for the future – or perhaps even for your anxieties.
Pay It Forward and Donate To a Charity
Yes, sending money to a charitable organisation will not help you. However, other people could use the money. Do your research about charities with causes that you believe in and find out if they accept monetary donations. Some may only accept supplies, which you can buy to extend a helping hand.
Start a Business
Your tax refunds can be your capital for your new business. If you have business ideas that you want to implement, the tax refunds you receive can go into funding the ideas. Many ideas do not necessarily need a lot of seed capital. Some business ideas develop from hobbies and lift off with just a little capital. Investing your tax returns into such a business can turn out to be very profitable.
Some businesses such as baking, painting, and woodworking may only need seed money for the starting inventory. As a side business, you may not need to hold so much inventory, making it a viable use for your tax refunds.
Create an Emergency Fund
Life can have many surprises that cause financial strain. You may lose your job or get into financial hardship at any time. A good way to prepare for unpredictable life events is to have an emergency fund.
When you get tax refunds, you can channel them towards your emergency fund. That will help you grow the fund to cover you in times of dire financial strain. By saving in the emergency fund, you will have averted future stress due to strained finances. It would be easier to handle emergencies, leading to less stressful situations.
Make Home Improvements
From time to time, your home may need improvements. Although your tax refunds may not be enough to fund big remodelling projects, they can help you carry out small improvements to your home. From painting your house to replacing leaking faucets, there are many ways you can invest money into improving your home.
The money can be used to replace and repair old appliances or fix fixtures in the house to lower your energy bills. For example, fixing an old broken window may make your air conditioning more efficient and save on energy.
Increase Your Superannuation Funds
You can use the tax refund to top up your super. Add a personal contribution through your own or your spouse’s super fund. This type of contribution is different from any compulsory contributions that your employer makes or through a salary sacrifice arrangement.
By increasing your contributions after taxes, you can boost your super savings big time. Note, however, that there are caps that apply to super contributions in a given tax year. Find out what your limits are, which can depend on your age and other factors, including after-tax contributions.
Invest in Yourself
If you think about it, you will agree that your biggest asset is yourself. You produce income that you can spend on the things you like and need. Your talent, experience, expertise, and reputation can add value to yourself.
You can use the refund in many ways to improve your skills. For instance, if you have always wanted to learn how to use Photoshop, you can enrol in classes that will let you understand its basics or even master its functions and features.
You can further your education as well by taking something related to your college degree. Your tax refund can pay for your training or tuition fees. You can even join a conference that is related to your work or you can become a member of a professional organisation. Education is an investment that can benefit you in a few years. You can earn bigger paychecks and improve your job stability.
Save the Money for Your Child or Grandchild’s Education
Children or grandchildren grow really fast. The next thing you know, they are ready for college. Start a college or education fund for your child while it is still early. Let’s face it: education is not cheap. But the key to managing the cost is to plan ahead.
As a parent, you can use a three-pronged approach where: 1) You work out how much you need, 2) Find out how much you can save on a regular basis, and 3) Determine where you are going to put the money.
Public schools are certainly more affordable, but they are not free. Remember that you will have to pay for uniforms, textbooks, and other items, which can take a huge chunk out of your budget if you are unprepared.
According to the Australian Scholarships Group (ASG), education for children born in 2017 can cost more than $76,000 from kindergarten to Year 12. But for Catholic systems, the average cost is even higher at around $230,000 while the private or independent system is the most expensive, averaging $556,472. With these numbers, it is important to save now rather than later. Although your tax refund will not be quite as hefty as you think, the amount you put into your child’s education can add up for the years to come.
Save for a House Deposit
If you plan to buy a house, you can use your tax refund for something meaningful, such as for your house deposit. Your goal should be to cover at least 20% of the total purchase price of the property. Some lenders may accept a five per cent deposit, but it also means that you have to pay for the lenders mortgage insurance (LMI).
Regardless, paying for the deposit alone involves cash that you may not be prepared to use. It is why setting aside some money for your house goal using your refund can boost your total deposit.
Refinance Your Mortgage
The Australian Bureau of Statistics said that about 22,000 Aussies refinanced their mortgages in 2015. This number is considered the all-time high in the country. However, the number went down to 18,000 a year later.
Refinancing your mortgage has many benefits. Sadly, not all individuals know about what they can gain out of refinancing, such as:
- Getting better mortgage rates
- Consolidating debts
- Cancelling mortgage insurance
- Borrowing money
- Shortening your borrowing term
Refinancing still requires you to pay closing costs and other fees. It is one of the reasons why Australians try to avoid it as much as possible even though the long-term benefits outweigh the initial costs. If you recognise that refinancing your mortgage is beneficial for you, you can use your tax refund to fund the closing costs. It will provide you with thousands of dollars of savings each year on interest.
Save The Money
You never know the emergencies you could face in the next few months. If you cannot decide where to spend your 2023 tax return, perhaps the best option is simply to use the refund as a money buffer. Let it go to your emergency savings so you have the cash to turn to in case of an unexpected event.
Invest in Tax Advice from Real Experts
The influx of cash can be beneficial in many ways. You should take the opportunity to learn, discover, and understand more and the extra from your tax refund can help pay towards getting proper advice. With the help of a tax advisor, you can get recommendations and even a tax forecast. These services can aid you in maximising your tax deductions while reducing your liabilities in the future.
Remember that the above tips are general recommendations. You can talk to an accountant or a financial advisor to get advice specific to your actual situation. No matter how you plan to spend your tax refund, we always recommend that you put the money to good use – one that you will benefit from today and in the future.