Effective Ways To Spend The Extra Cash From Your Tax RefundJuly 20 2021
"It is very tempting to think of your cash return as extra money you can use to spoil yourself with. But it can really be used to get ahead." - Jesse Lee, Digital Product Manager
If you hate doing your tax, perhaps knowing the average refund is almost $3,000 will make the chore a little easier.
Last year the ATO refunded more than $30 billion to 10.8 million Australians.
If you are among the almost 80 per cent of taxpayers who can expect money back, we find out what you could do with the extra cash.
Remember this is general advice – if you want recommendations specific to your situation it is best to talk to a trusted financial advisor or your accountant.
Pay down debts
The first thing both our experts suggested was paying down debt.
Stellan Capital founding partner Siobhan Blewitt said Australians were doing this in droves.
"People are being really, really careful," the financial advisor said.
"Savings rates are very high, and [people] are using money to pay down their debt."
With interest rates at record lows, $1,000 on your mortgage today will go further towards paying off your principal debt than it would have five years ago.
Care Financial Counselling's Deb Shroot said a tax refund can also be a great opportunity to try and clear more expensive debts, like credit cards or other loans.
If you do not have enough money to cover the entire debt, you could negotiate with the business to offer a "full and final settlement" less than the total you owe.
"For example, if you got $2,000 back and you've got a $3,000 credit card debt that has been owing for a long time, you might be able to do a full and final settlement," she said.
"This means you offer them a reduced amount in a lump sum and they clear the rest of the debt."
Spend the money
If you are relatively debt-free and have enough to cover living costs, Ms Shroot suggests putting the money towards your financial goals.
"There are no right and wrong answers, it depends on what is important to an individual."
If you have been delaying a one-off expense, like a medical procedure or updating your laptop, a tax return could be used to fill the gap.
Before you make a purchase, Ms Shroot said it was important to figure out if you could afford any maintenance required.
"If you buy a car or a pet, make sure you can sustain those ongoing costs," she said.
While low interest rates are good for people with debt, they are not great if you want to earn money on your savings, Ms Blewitt said.
She has noticed "a generational shift" away from keeping cash in the bank, with many people investing in the market for the first time.
"People who would typically be in term deposits are being pushed out of them into [products with] higher returns," she said.
If you want to invest your tax return, Ms Blewitt recommends doing some research and investing in businesses you know.
"The stock exchange has a lot of introductory information," she said.
"Think about where you spend your money on a daily basis, are those shares listed?"
If you know a business and have had good experiences as a customer, it could be a good starting point for your share portfolio.
The other thing Ms Blewitt recommends is looking for shares that are good value for money — "not yesterday's hero".
"If you have $1 to invest, the area of opportunity today in the Australian market remains in the energy sector and COVID recovery stocks (that would be tourism, travel, and leisure)," she said.
"This year's success will be the stocks COVID dogged last year."
If you take away one thing?
Do your tax return. Every year.
Ms Shroot said she often saw clients who had not done their tax for a long time and it could cause problems.
As well as missing out on potential refunds, you will not be able to access government benefits including JobSeeker and childcare rebates.
If you are concerned you might owe the tax office money, Ms Shroot said it was always better to engage with the problem rather than avoid it.
"They are very open to payment plans and making arrangements, so there is no need to freak out if you do have a tax debt and you can't pay it."
If you are unsure how to do your tax return you could be eligible for tax help from the ATO.
For most people, Ms Shroot said it was pretty simple to do your return online through MyGov.
"Most of the information pre-fills and you just have to double check it — it can take as little as 10 minutes," she said.
Marozzi, M. (2021, July 17). Don't want to do your tax return? You could be missing out on thousands. ABC (Australian Broadcasting Corporation). https://www.abc.net.au/news/2021-07-17/average-australian-tax-refund-is-2800-ato/100292152