We’ll explore seven smart ways to use your tax refund in Australia, backed by practical examples, up-to-date figures, and expert tax tips.
Quick Summary:
- Build an emergency fund
- Pay off high-interest debt
- Cover essential expenses
- Grow your savings
- Put extra on your mortgage
- Boost your super
- Treat yourself (within reason)
For many Australians, tax time feels like opening a mystery box, you’re never entirely sure what you’ll get until your Notice of Assessment arrives.
If you’re one of the lucky ones receiving a refund this year, the next question kicks in: What’s the smartest way to use it?
Whether your 2025 tax refund is a couple of hundred dollars or a few thousand, using it strategically can strengthen your financial position, reduce stress, and even set you up for long-term gains.
1. What’s the Smartest Way to Build an Emergency Fund?
An emergency fund is one of the simplest ways to protect your finances. It’s exactly what it sounds like, cash set aside for life’s surprise moments: car repairs, medical expenses, job loss, or the washing machine deciding to retire early.
How much should you save?
Most financial advisers recommend 3 to 6 months of living expenses. If that feels out of reach, start smaller. Even $500–$1,000 can soften the blow of unexpected costs.
Client Case Study: Turning a Small Refund Into Real Security
One of our clients received a $1,200 tax refund, not life-changing money, but enough to make a difference with the right approach. Instead of spending it immediately, they chose a simple strategy: set aside half of it.
By allocating $600 straight into a separate savings account, they instantly created an emergency buffer they didn’t have the day before. That small decision meant unexpected expenses, like a flat tyre, a medical copayment, or a sudden bill, would no longer derail their budget.
It’s a great example of how even a modest refund can shift your financial footing. With a little intention, a short-term windfall becomes long-term peace of mind.
Pro Tax Tip:
Consider keeping your emergency fund in a high-interest savings account. Many banks currently offer around 4% p.a. (rates vary). Your money earns interest while staying easily accessible.
For personalised advice on how much to save and the best tax-effective accounts for your emergency fund, find your nearest ITP office and book a consultation.
2. Should You Use Your Tax Refund to Pay Off Debt?
If you have high-interest debt, using your refund here can deliver one of the biggest returns.
High-interest items include:
- Credit cards (often 18–22% interest)
- Buy now, pay later missed-payment fees
- Personal loans
- Payday loans
Why this matters:
The higher the interest rate, the more your debt snowballs.
Client Case Study: How a Refund Stopped Debt From Snowballing
A client came to us with a $2,000 credit card balance sitting at 20% interest. Left unpaid, that balance would cost them around $400 a year in interest alone, money disappearing without improving their financial situation.
When their tax refund arrived, they used it to make a significant dent in that balance. The impact was immediate: less interest accumulating, lower monthly pressure, and a faster path to becoming debt-free.
This simple move shows how directing your refund toward high-interest debt can save you hundreds each year and give you back control over your finances.
Pro Tax Tip:
If you’re struggling with multiple debts, you may be eligible for the government-supported National Debt Helpline, which offers free financial counselling.
Need a tailored plan to crush high-interest debt with your tax refund? Connect with a registered ITP agent.
3. Is There Something Essential You’ve Been Putting Off?
Sometimes the smartest decision is the most practical one. Life admin can add pressure when things break, wear out, or simply need attention.
Think about:
- Dental work before issues worsen
- Replacing an inefficient fridge or aircon that’s inflating your power bill
- Car servicing and tyre replacement
- Upgrading a slow laptop if you use it for work (some work-related purchases may even be deductible next year)
Client Case Study: Turning a Refund Into Long-Term Savings
One household we worked with had been battling a faulty old appliance that chewed through electricity every month. It still worked, but it was costing them far more than they realised. Energy efficiency benchmarks from government programs show that outdated appliances can add $200–$300 a year to your power bill.
When their tax refund came in, they used part of it to finally replace the appliance with an energy-efficient model. The result wasn’t just a nicer upgrade, it immediately reduced their electricity usage and lowered their annual running costs.
A simple one-off decision turned into consistent yearly savings, proving that sometimes the smartest financial move is fixing what’s quietly draining your budget.
To discuss which essential, work-related expenses you should purchase this year to maximise next year’s deductions and reduce long-term costs, consult with an ITP tax agent.
4. Should You Save Your Tax Refund Instead?
There’s nothing wrong with good old-fashioned saving. You don’t need a major financial goal to justify growing your bank balance.
Savings goals might include:
- A future home deposit
- A holiday fund
- School fees
- A new car
- A financial buffer for cost-of-living pressures
Setting your refund aside gives you momentum and motivation.
Pro Tax Tip:
If you haven’t reviewed your budget lately, tax time is the perfect reset. You can also bookmark your MyGov ATO portal and check last year’s income and deductions to plan ahead.
For advice on tax-effective savings structures and setting your next financial goals, find your local ITP office.
5. Can Your Tax Refund Reduce Your Mortgage?
If you have a home loan, applying your tax refund to your mortgage can be a powerful long-term strategy.
Why?
Home loans can cost hundreds of thousands in interest across 25–30 years.
Client Case Study: Using a Refund to Cut Years Off a Mortgage
One client decided to put their tax refund to work by adding an extra $2,000 into their mortgage offset account. With their home loan sitting at around 6% interest, that single deposit saved them roughly $120 in interest over the next year, without them doing anything else.
But the real benefit comes over time. As interest continues to compound, that one contribution helps reduce their loan balance faster, shortens the life of the mortgage, and saves even more interest in the long run.
It’s a simple example of how directing your refund toward your home loan can make a measurable difference, even with a one-off payment.
Home improvement ideas:
You can also invest in small upgrades that increase your property’s value, such as:
- repainting
- gutter repairs
- decking or fencing updates
- energy-efficient lighting
These improvements enhance livability and value simultaneously.
Want to know the exact amount of interest you could save by putting your refund toward your home loan? Book a consultation with us.
6. Should You Make a Super Contribution With Your Refund?
Superannuation is one of the most tax-effective ways to build long-term wealth.
Tax advantages:
- Most concessional contributions are taxed at 15%, which may be lower than your marginal tax rate.
- You may be eligible for the government co-contribution (up to $500) if you’re a low- or middle-income earner.
- Your investment earnings inside super are taxed at a lower rate.
Client Case Study: Turning a $1,000 Super Top-Up Into a $500 Boost
A client earning under the $43,445 income threshold for 2024–25 wanted to use their tax refund to strengthen their long-term savings. Instead of spending it, they made a $1,000 personal after-tax contribution to their super.
Because they met the eligibility criteria, the government added an extra $500 through the Super Co-contribution scheme, essentially giving them a 50% return instantly.
With one simple move, their $1,000 became $1,500, boosting their retirement savings without any extra effort. It’s a powerful example of how strategic super contributions can turn a small refund into a significantly larger benefit.
First Home Super Saver (FHSS):
If you’re saving for your first home, the First Home Super Saver (FHSS) scheme can give your deposit a major boost. Instead of keeping all your savings in a regular bank account, the FHSS scheme lets you make voluntary contributions to your super, either through salary sacrifice or personal after-tax payments, and later withdraw those contributions (plus earnings) to use toward your deposit.
The biggest advantage is tax efficiency. Money contributed to super is generally taxed at a lower rate than your regular income, which means more of your savings stay in your pocket and have the potential to grow faster.
Under current rules, you can release up to $50,000 of your eligible contributions when you’re ready to purchase. For many first-time buyers, this can significantly accelerate how quickly they can build a deposit, especially when combined with regular contributions or a portion of their tax refund.
The FHSS scheme is designed to help Australians save smarter (not harder) for their first home.
Are you eligible for the Super Co-contribution or FHSS scheme? Get expert guidance on making tax-efficient super contributions.
7. Is It Okay to Treat Yourself?
Absolutely. A tax refund is still your money and there’s nothing wrong with using a portion for something enjoyable.
Ideas include:
- A weekend away
- A nice dinner with family
- Upgrading your hobby equipment
- Taking your kids somewhere special
Just aim for balance: enjoy yourself without setting back your financial goals.
Want to Maximise Your Refund Next Year?
The smartest use of your tax refund actually starts long before you receive it. Claiming the right deductions, keeping proper records, and getting expert guidance all help you maximise your return.
If you’d like tailored, professional help, you can book an appointment with an ITP tax agent anytime.
More Helpful Articles:
How to Get Your Tax Refund Faster in 2025
Tax Calculator Australia 2025: Why It’s Still the Easiest Way to Estimate Your Refund
EOFY 2025: Top Tax Planning Tips to Maximise Your Refund
Disclaimer: The information provided in this article is intended for general guidance only and does not take into account your personal financial situation, circumstances, or objectives. Tax laws, rates, thresholds, and government schemes change frequently, and while we have updated this content for the current year, you should always verify details with the Australian Taxation Office (ATO) or other official sources. For advice tailored to your unique circumstances, including deductions, super contributions, and tax planning strategies, it is strongly recommended that you consult a registered ITP tax agent or other qualified financial professional. ITP and its authors accept no liability for any loss or damage arising from reliance on this information.