And with an average refund for Australian tax payers of $3,630 up for grabs, it’s worth thinking about how you’ll use the money.
Tax Office figures show almost four out of five workers are likely to receive a tax refund, and surprisingly, a poll by the government’s MoneySmart website shows only 16% of people who received a tax refund last year actually spent the money.
The most popular way we used our 2014 tax refund (31%) was simply to save the cash. One in four (24%) put the tax man’s refund to work paying bills, and 18% paid down personal loans and credit card debts. Just over one in ten (11%) tipped a tax refund into their home loan.
It’s not often we receive a lump sum windfall, so it’s definitely worth thinking about how to get the most bang for your tax refund buck.
Using a tax refund to pay off debt certainly has its pluses. The average credit card debt is, coincidentally, about the same as the average tax refund, and using your refund money to clear a $3,000 card balance could mean saving around $600 in interest charges this financial year alone - especially if your card rate is around the 20% mark.
Tipping a tax refund into your home loan is a smart strategy that could even mean doubling your money. Making a $3,630 lump sum payment on a loan of $300,000 with the average variable rate of 4.7% can slash up to $7,440 off the total interest cost and cut around six months off your loan term.
If you’re among the one in three who prefer to save their tax refund, it pays to shop around for a decent interest rate. Or go a step further and ramp up the possible returns by using the cash to build a portfolio of investments. A balanced managed fund can provide instant access to a variety of asset classes.
Another way to turbo-charge the value of your tax refund is by adding the cash to your super fund. And note, if you’re a low to middle income earner, you could be entitled to a government
co-contribution worth up to $500.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.