The reward for tackling this year’s tax return is the prospect of a juicy tax refund. And with a total of $27 billion refunded to individual taxpayers last year, there’s plenty of cash up for grabs.
Last financial year saw Australians each receive an average tax refund of about $2,000 – not a bad windfall. But no matter how much you get back from the tax man, there are lots of ways to make the money work harder.
A survey by comparison site Finder found 40% of us plan to save our refund. One in four (24%) will use the money to pay bills, and 11% will use their tax refund to finance a holiday. Only a small proportion will use the cash to splash out at the shops.
Tucking your tax refund into a savings account can be a smart move – especially if you use the money to launch a personal savings plan. It’s possible to earn up to 3.4% on cash at present, and by depositing a refund of $2,000 into a high interest saver – then adding an extra $50 each week – you could accumulate $4,712 in just 12 months. Check the fine print of your account, as the top rate may only apply for the first few months.
Or, you could deposit the same $2,000 refund into a term deposit. By shopping around your money could earn up to 3% on a 12-month term. However without the option to add to your savings, after 12 months the initial deposit would have grown to only $2,060. That said, if you don’t trust yourself to avoid dipping into your savings, it may be an option worth considering.
Low to middle income earners, who use at least part of a refund to grow their super, can really add value to the tax man’s cheque thanks to government co-contributions.
If you earn less than $36,021 this financial year, the government will pay 50 cents into your super for every dollar you contribute using after-tax money, up to a maximum of $500. So adding a $1,000 tax refund to your super account can see the government chip in a further $500 – it’s an instant, tax-free return of 50%. The co-contribution reduces as your income increases but you could still be eligible if you earn up to $51,020.
Another strategy to get more bang for your tax refund buck is by paying down high interest debt. Australians owe an average of $3,150 per credit card, and by using a $2,000 tax refund to pay down the balance, the outstanding balance can be slashed to a more manageable $1,150. With a card rate of 15%, you’d also save yourself $300 in interest charges in the first year alone.