“Woohoo! I’m getting a tax refund!”
It’s the news we all want to hear because, let’s face it, no one wants a tax bill! So what’s the best way to use your tax refund? Before you race off to the shops and spend it all, consider some smarter ways to use your tax refund that might have a bigger impact on your finances now and into the future.
Invest in work related equipment over $300
You might have had your eye on a big ticket item, like a new computer, printer or tools, but have been putting off making the purchase – well now could be a great time.
You can claim a deduction for the cost over the life of the item if the tool or equipment cost more than $300. If you were to buy this item at the end of a financial year, then the benefit on your next tax return will be very small. However, if you buy the item early in the year (ie. July or August) your depreciation calculation will cover more time and therefore mean a greater deduction on your next tax return.
Pay off debts and loans
Credit card debts and personal loans eat away at our finances through all the interest accrued over time. If you have a debt or loan, consider using your tax return to wipe these away, or even just reduce the debt. Every little bit helps, and wouldn’t you rather that you use your money for YOU, rather than contributing to banks’ profits?
Another option, if you have a mortgage offset account, is to pay your tax return into your mortgage offset account. You’ll end up paying less interest on your mortgage and you’ll be in a good position to pay your home off sooner. It also means the extra money in your offset account (from your tax return) is available to you in the case of an emergency.
Top up your Super
According to ASFA, a single person who retires at 65 with a ‘comfortable’ lifestyle will need around $545,000 in today’s money to retire. How is your current super balance tracking? Why not top it up with your tax return? If you can boost your super early on, it will give you more time for your savings to grow. Don’t forget to keep your contribution caps in mind!
You’ve worked hard for this tax return, so now consider how to make it work harder for you. Even if you spend a little on yourself and then use the rest to improve your financial future, your future self will thank you for it!
The advice provided in this article is of a general nature only. It does not take into consideration your personal circumstances. It is up to each individual what they decide to do with their tax refund. For further advice, we recommend you consult with a financial advisor.