The five best ways to spend your tax return, according to experts

A tax return can be turned into a cash cow investment. Experts reveal the smartest place Aussies should put the extra money.

The ever-relevant adage of investing is not to put in anything you couldn’t afford to lose. Unexpected cash injections such as a yearly tax return, then, can be a low-risk means of getting on top of your finances.

As tax returns begin to roll in, The Australian asked market experts for the smartest ways to invest that highly anticipated bonus.

“One of the key hurdles (to investing) is finding that spare cash,” said John Winters, CEO of superannuation platform Superhero.

“A lot of people have a desire to invest, but it’s hard to set aside those extra dollars. Often, when you have a favourable tax return, you have some extra money in your pocket. Be strict and set some of that aside, instead of buying some clothes or going out on the weekend — it’s about having that discipline.”

John Winters, Co-Founder and Chief Executive Officer of Superhero. Picture: Supplied

Approach your tax return via a tiered system that balances your financial needs with how much you got back, suggested Mark Chapman, Director of Tax Communications at H&R Block.

If you got $1000 back

Clearing high interest debt should be the first priority, Mr Chapman told The Australian.

“With the current cost of living crisis, it’s fair to say that most people need every dollar that they can get,” he said.

“If you’re like a lot of people and you’re struggling to make ends meet, it makes sense to use the return to pay down debt, particularly high interest debt like credit cards and car loans.”

This may be more relevant if your return was smaller than expected, if you are facing high levels of debt, or if you have been hit particularly hard by interest rate rises.

Mark Chapman, Director of Tax Communications at H&R Block. Picture: Supplied

If you got $2000 back

If your tax return was slightly larger, and your high-interest debts have been cleared, put the return towards longer term investments, Mr Chapman suggested.

“Consider putting it towards your mortgage,” he said. “If you don’t have a mortgage, then you can start thinking about investing it into super.”

“You can claim up to $27,000 in super contributions, so your tax return could go towards that. By investing in super, you not only get the benefit of the return, you also get an additional tax deduction for 2023.”

If you got $5000 back

Only if you are on good financial footing, or your return was sizeable enough to cover multiple bases, should you spend the cash on non-essential investments.

“If the cash coming in from your tax return is surplus to requirements, then you can consider investing it into some investment product which will generate a decent return,” Mr Chapman said. Research investments that are likely to do well in the current climate, and place the money there.

“Finally, you can simply use it on personal consumption — a nice holiday, a shopping spree, a gift for someone. If you’re in a position to do that, that’s a very satisfying way to use your tax return.”

Originally published as The five best ways to spend your tax return, according to experts