How to make the most of your tax return

Check out our ideas on what you could do with your tax return this year.

  • 9 June 2022

    While tax time can be annoying, inconvenient and even painful for most of us, everyone loves receiving their refund. But whether your tax refund measures in a few dollars or a few thousand dollars, it still begs the question – how do I make the most of it?

    Two pairs of hands, one a child's and one an adult's, clasp a full jar of money.

    Disclaimer: The information contained in this article is of a general nature only and should not be taken as financial or legal advice on any of the topics discussed. Always consult a financial or registered tax adviser before making any investment decisions.

    This article was originally published in July 2019 and updated in June 2022.

    Spend vs. stash

    Spending a sudden influx of cash can be tempting, such as taking the family on a holiday or buying yourself something special. But if you’re struggling with credit card payments or personal loans, the best option for making the most from your refund might be putting it to work.

    Prioritise bills that cost you the most. For example, if the interest on your credit card is around 20% and your personal loan is only 11%, think about making additional payments on your credit card first to help bring the balance down.

    After that, you can look at making additional payments on other loans.

    For some, what happens tomorrow is more important than paying off existing debt. If you’re looking to the future but want to do something different with your tax refund this year, here are some ideas.

    1. Plan for retirement

    When you receive your tax refund, instead of spending it you could make a lump sum contribution to your superannuation. Contact your super fund or financial advisor for more information about how to top up your super, as well as how much you can add. You may also be able to claim a tax deduction for personal super contributions you make to your super fund from your after-tax income.

    2. Start a fund for your children

    Using your refund, you could start a fund to contribute to your child’s school fees, university costs or even their first car. Only a few hundred dollars each year could add up to something quite substantial over 16 to 18 years.

    3. What about your next tax refund?

    Over the next 12 months, think about using your tax refund to purchase items that could be tax deductible. For instance, if you are required to work from home, any home office expenses such as computer equipment could be tax deductible.  To calculate your working from home expenses you need to use one of the methods set out by the ATO. More information is available on the ATO's website. Using your tax refund to make these purchases could reduce your taxable income for next year. 

    4. Decreasing the interest on your mortgage

    Instead of dropping a lump sum onto your home loan, you could consider a mortgage offset account. Any money in a mortgage offset account doesn’t earn interest. Instead, it reduces the capital balance of your loan and reduces the interest you pay. Even if you continue making repayments at the regular amount, this strategy can help you pay off your home loan more quickly.

    Check with your lender, but in most cases any money invested in a mortgage offset account can be accessed when needed.

     

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