Tax refunds 2021: smart ways to spend your windfall

A majority of Australian taxpayers will receive tax refunds above $1000 this year. Here’s how to put it to good use.

Tax refunds will soon land in bank accounts across Australia, delivering taxpayers a great opportunity to make the money work harder for them.

New research by accounting software group MYOB has found that paying bills is the top destination for many refunds, followed by investing, while home improvements are popular for some.

Only 4 per cent of people say they’ll buy something frivolous with their tax return windfall, MYOB found.

Some tax refund strategies deliver bigger financial rewards than others. Here’s what to consider.

MBA Financial Strategists director Darren James says investing a tax refund can be wise.

SUPER STRIKE

Fancy an effective 50 per cent return on your money?

MBA Financial Strategists director Darren James says super fund members can use tax refund cash to make the most of the federal government’s superannuation co-contribution if they fit within its income thresholds.

If you earn less than $41,112 this financial year you can put $1000 of after-tax money into super and the government will co-contribute $500. People earning up to $56,112 can still get some form of co-contribution.

Other superannuation fund members can get tax deductions by making personal lump sum contributions to their super account, James says.

INVEST IT

Investing a tax refund gives the money a chance to multiply.

“There’s a host of vehicles out there now where you can put money into an investment portfolio and it costs bugger all,” James says.

A growing number of websites, platforms and apps allow people to inject smaller amounts into shares and other investments, and let compound interest work its magic over many years.

DESTROY DEBT

James says credit cards can charge 19 per cent interest, so if you “count that as a financial return” the debt is a good destination for a tax refund.

MYOB tax specialist Jacqueline Lim says people should prioritise paying debts with the highest interest rates.

MYOB tax specialist Jacqueline Lim says paying off high-interest debt is a priority.

COVID RECOVERY

The pandemic damaged the financial strength of millions of Australians.

Lim says MYOB’s research found more than one-fifth of people had a lower income in 2020-21 and Covid was the reason for a majority of them.

“It’s possible some are playing catch up on bills accumulated over the past year,” she says.

For them, a tax refund will help their financial recovery.

TAX REFUND PLANS

Where Australians will spend their windfall:

Paying bills 28%

Investment 23%

A holiday 10%

Home furnishings 8%

Home improvements 8%

Supplement Covid-hit income 8%

Frivolous spending 4%l

Source: MYOB

Where Australians will spend their windfall:

● Paying bills 28%

● Investment 23%

● A holiday 10%

● Home furnishings 8%

● Home improvements 8%

● Supplement Covid-hit income 8%

● Frivolous spending 4%

Source: MYOB

Originally published as Tax refunds 2021: smart ways to spend your windfall