Tax time 2024: how your annual refunds can multiply to $100,000

It may take a while, but transforming tax refunds into big bucks is a potential life-changer, as long as you avoid an urge to splurge.

Anthony KeanePersonal finance writer

@keanemoney

3 min read

August 7, 2024 - 3:17PM

The Australian Business Network

Investing, rather than spending, your tax refund is a key to riches. Picture: iStock

National

Don't miss out on the headlines from National. Followed categories will be added to My News.

The Australian Taxation Office has given millions of Aussies the green light to file their tax returns now that most banks and other agencies have pre-filled peoples’ data, which means juicy refunds loom on the horizon.

New figures from the ATO show the average refund for 2024 tax returns filed so far is just over $2500. It says the number may fluctuate as more people lodge, and the 2023 average refund was $2842.

A $2500 annual tax refund, if allowed to multiply over many years, can turn into big bucks – more than $100,000 for patient people.

Money specialists say there are plenty of ways to multiply your tax refund into many thousands of dollars.

Chartered accountant and Mr Taxman founder Dr Adrian Raftery says investments typically double every six-to-12 years, depending on the level of risk an investor takes.

This means that each annual $2500 tax refund can be worth more than $5000 after a decade. But they must be invested, rather than spent on everyday life.

“Once you spend it, it’s gone,” Raftery says.

“If you can get into a saving culture, then that will assist you with paying down debt, building up deposits for houses, an earlier retirement and a better lifestyle in the future,” he says.

RISKIER RETURNS

Raftery says investing annual $2500 tax refunds at a net return of 4.5 per cent would take an estimated 23 years to reach $100,000, but people who choose higher-growth and higher-risk investments can accelerate this.

“For example, $2500 per annum at a 10 per cent net return would reach the $100,000 target in 16 years,” he says

“Seek professional advice from a financial planner for input on the appropriate investments for your own risk profile.

“If you can add extra amounts to your refund, you will reach $100,000 sooner.”

What happens when you lodge your tax return too early

This could potentially come from the stage three tax cuts that started in July and added $2129 to annual after-tax income for a person earning the average Australian wage near $98,000.

Tiger Brokers Australia vice president Jack Liang says combining the tax cuts and tax refunds gives people a great opportunity to grow wealth through investing.

“Many Australians wrongly think they need thousands in savings to start investing, but you can start with very small amounts,” he says.

“In fact, it’s a good idea to invest a small amount of money at first. This will help new investors get a feel for how the stock market works and how to make money from investments.

“We know many Australians are doing it tough through the cost-of-living crunch, but investing your savings to grow your wealth is a great way to take control of your financial future.

“When your tax refund arrives in your bank account, avoid the urge to splurge.”

AVOID COPYING

ATO assistant commissioner Rob Thomson says people should “not just copy and paste your deductions from last year” because rules around deductions change and taxpayers may be missing out on everything they are entitled to.

“Most taxpayers will have their tax returns finalised within two weeks,” he says.

“This process can’t be sped up, even if you call us.”

Thomson says people should ensure they have the right records before claiming deductions.

“In most cases, a bank or credit card statement on its own isn’t enough evidence to support a work-related deduction claim – you’ll need your receipts,” he says.

“No proof, no deduction.”