Just a month into the new financial year the conscientious among us will have already
submitted their tax return and are likely to be found shining their financial halos and breathing a sigh of relief.
Others are screeching towards the 31 October deadline for tax return lodgement, hopefully pulling together paperwork and booking in time to visit the accountant.
Whatever camp people are in, most love to think about what to do with any refund that
comes their way.
While the sales are oh-so-tempting for some, others will want to use any money they get back to get ahead financially. Even if the refund is only small it is worth seriously considering how to use it and remind ourselves of an old proverb: if you mind your cents, the dollars take care of themselves.
Here are five smart moves that could see you get considerably more value from your tax refund this year.
Reduce bad debt – consider using your tax refund to pay off high interest debt, such as credit cards or personal loans. It’s worth paying this debt down as quickly as you can as interest rates on credit cards, for example, can be as high as 20 per cent.
Pump it into your mortgage – for people with a home loan it is definitely worthwhile making a lump sum payment. On a mortgage of $350,000 at 6.5 per cent interest, tipping $2,000 into your loan could cut $5,270 off the overall interest over the term of the loan. ^ Another option is parking the cash in a mortgage offset account, so you’re reducing interest but are still able to access the money quickly if you need it.
Ease education costs – the cost of private secondary education in Australia has skyrocketed by 264 per cent over the past 27 years, so it could be worth putting your tax refund towards school fees or education costs.^^ If you have older children at university, another option would be to help them pay off some of their education debt.
Boost your super – investing in your super can be a smart idea if you are eligible for the Government co-contribution. For those who are eligible, the Government will match every dollar of non-concessional (personal after-tax) contributions with a 50 cent Government co-contribution to super – up to a maximum of $500. There are not too many investment
strategies that can achieve a 50 per cent short-term return.
Make a spouse contribution – if your spouse is not working, or earns less than 10,800 (phases out at $13,800) per year, you may be entitled to claim an 18 per cent tax offset (up to $540) if you make a contribution to their super. On a $2,000 contribution, that’s a tax offset of up to $360. This strategy will allow you to get more value from your tax refund and help your spouse build their super for retirement.
So if a tax refund arrives in your account this year, take a deep breath, step away from the sales and think about some of the smarter ways you can put this once-a-year windfall to good use.
Bye for now