Wondering what to do with your tax refund?

Tax time can be annoying, painful, and, for the most part, inconvenient – until the refund arrives. What will you do with yours?

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.

Are you a spender or a stasher?

It’s tempting to have a spend-up: taking the family on a holiday or buying yourself something special. But if you’ve been struggling with credit card payments or personal loans, the best option for making the most of the cash is to put it to work.

Try to prioritise paying the bills that cost you the most. For example, the interest on your credit card could be anything up to 20%, while the interest on a personal loan might be around 11%. It would be sensible, then, to make additional payments to your credit card to help bring the balance down.

After that, you might make additional payments to other loans.

For some people, paying off debt isn’t as great a priority as planning ahead. If you’re looking towards the future but want to do something a bit different with your tax refund this year, we have some ideas to share.

1. Plan for retirement

Make a one-off lump sum contribution to your superannuation. Contact your super fund or financial advisor for more information about how to top up your super and how much you can add. You may be able to claim a tax deduction for personal super contributions you make to your super fund from your after-tax income. 

2. Create a dedicated fund for your children

The money will add up year after year to become something quite substantial. You could use the fund to contribute to school fees or, later, your children could use it for university costs or even their first car.

3. Think of your next tax refund

You could even use your tax refund to purchase items during this financial year, which could be tax deductible when submitting your next tax return. For instance, if you are required to work from home then home office expenses like 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 website. These, in turn, may reduce your taxable income in your following year’s return.

4. Bring down the interest on your home loan

If dropping a lump sum onto your home loan seems a little obvious, consider a mortgage offset account. Money in a mortgage offset account does not earn interest. Instead, it reduces the capital balance of your loan and, as a result, reduces the interest you pay. If you continue making your repayments at the prescribed amount, this strategy can help you to pay off your home loan more quickly.

Check the details of your home loan with your lender but, in most cases, you’ll find that money invested in a mortgage offset account can be accessed if you need it.