Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.
The average Australian tax return comes in at just over $2,000*. Although it can be tempting to splurge this supposed “free money”, there are several ways you can use your tax refund to improve your financial situation and invest in you and your family’s future.
Sydney-based CERTIFIED FINANCIAL PLANNER® professional Jeremy Chiel, of the Stonehouse Group, says: “If you have any personal debt such as a credit card or personal loans, eliminate this as much as possible. These loans can have high interest rates of up to 22 per cent, and paying off a lump sum will save you a significant amount of interest.”
PAY DOWN YOUR HOME LOAN
Chiel says you should consider using proceeds to pay down your home loan, but he recommends paying the funds into an offset account as opposed to directly onto the loan.
“The end result is the same in terms of saving interest, but leaving the funds within an offset means they’re still available to you,” he says.
“Further thought is needed if you have a home loan and an investment property loan. This is because the interest on an investment loan is generally tax deductible, whereas a home loan won’t be.”
INVEST IN INCOME PROTECTION
Especially important if you are self-employed or have a family, income protection insurance replaces income lost through an inability to work due to injury or sickness. For the professional, self-employed and small business owner, the enterprise often relies heavily on their ability to work.
“Insurers often provide a discount (on income protection insurance) if this is paid annually, so it is worth speaking to your financial planner,” says Chiel. The cost of this cover is also a tax deduction.
GET PROFESSIONAL FINANCIAL ADVICE
If you’ve never sought the advice of a financial planner, this could be a good time to start. A CFP® professional can give you all the options relevant to your personal financial situation, including some you may never have thought of or even know about.
BOOST YOUR SUPER
Although some of the rules regarding limits and tax on superannuation funds have changed courtesy of the past two Federal Budgets, adding to your super via after-tax contributions or salary sacrifice is still a great way to invest in your future. Generally putting money into super will save you more than investing in the same assets outside super. Super contribution limits changed on 1 July this year, for more info: Australian Tax Office (ATO)
INVEST IN YOUR CHILDREN
Chiel says there are tax effective ways of using the funds from a tax refund to invest in your child’s education. “It is possible to use a tax effective bond, whereby it is taxed internally at 30 per cent and not included as assessable income in your own return,” he says. If used for education purposes, there are some instances where funds can be taken out tax free in the future. Chiel advises seeking advice around the rules and how this type of investment could be used.
INVEST IN YOURSELF
Investing in yourself might be in the form of further education, a course, workshop or anything that will improve upon your own skills. It might be hard to measure the exact benefit, however improving yourself could lead to a promotion at work or a new, better paying job.
TEACH YOUR CHILDREN ABOUT MONEY
If you have a child, consider using your windfall to teach them about investing and saving. “For example, explain that if they can save $500, you’ll match them with another $500 and invest the funds into shares in their own name. The amounts and method will vary, however it is a good excuse to discuss money and investing,” adds Chiel.