So , you’ve taken smart financial steps and maximised your tax return and are anticipating an extra cash injection into your bank account. According to the Australian Taxation Office (ATO), the average tax return for an Australian individual is $2,800. If you’re not getting anywhere near that, it might be time to take some action.
Pro Tax Tip: If you’ve self-lodged and ended up with a lower than average tax return, you can still have a tax agent to amend your return. It’s not too late!
Some people regard this money as a windfall, while others regard it as an unplanned extra. No matter which way you look at it, you’ll need to decide what you’re going to do with the money. While thoughts of buying a party night out on the town and staying in a luxury hotel might be tempting, there are ways you can potentially increase your tax return money and get the greatest bang for your buck.
Pay Off Your Credit Card
This might not sound like the most exciting way to spend your tax return money, but let’s look at the figures. According to finder, as of June 2022, the following are the credit card statistics in Australia:
- Number of credit cards in circulation: 13,161,440
- Average balance per credit card: $2,938
- Average balance costing interest per credit card: $1,380
- Average number of purchases per credit card per month: 22
- Average credit card purchase: $109
With an average interest rate of nearly 20%, the average Australian owes $3,252.60. Taking into the minimum card repayments, the repayment could potentially escalate into thousands of extra dollars. Many Australians who find themselves buried under a mountain of credit card debt, turns to their emergency savings, family and friends or ask banks and other financial institutions for another loan — increasing their debt.
A lump sum payment may not only wipe out your credit card debt, but save you thousands on compounding interest.
Make a Concessional Superannuation Payment
Australians are allowed to make extra payments into their superannuation account. Not only will you save on tax, but you’ll get an extra boost in the compounded growth of your fund. There are two types of payments that can be made:
- Concessional contributions
- Non-concessional contributions
Concessional contributions are payments made from your pre-tax money. Often these are made as a salary sacrifice arrangement you’ve set up with your employer. Individual Australians can add up to $27,500 of extra payments at a tax rate of 15%, which is much lower than the average marginal tax rate of 37%.
Non-concessional payment of $110,000 for individual and $330,000 for couples can be made from your after-tax money. You may be able to get a tax deduction for non-concessional payments depending on which super contribution you make. You’ll also benefit from receiving your money after your preservation age in a super income stream at a greatly reduced tax rate –after you’ve received the benefits of your fund maturing over the course of your working life. The more money you have in your super account, they more it will grow.
Top Up Your Savings
Saving money is important, and if you don’t have debt or want to top up your super, putting your money into a savings fund might be a smart option.
An emergency fund is an important fund to start if you don’t have one. Unexpected things happen in life and you’ll thank yourself if the time comes and you have the money to pay for the unexpected expenses. Your emergency fund should have at least 3 to 6 months worth of money to cover your living expenses.
A repair fund is another smart way to save money. Saving for car and house repairs could mean the difference between a patch up job or fixing the problem once and for all. Cars and houses don’t last forever and often not repairing something leads to more costs later on.
Putting money into a holiday fund is not only good planning but gives you something to look forward to when it’s time to take a break. You spend most of your life working and you don’t want to miss out on your holiday because you didn’t have the funds. This way, you won’t have to worry about borrowing money for your holiday, which could lead to more debt in the long run.
Pay Off Your Mortgage
Adding to your redraw facility on your loan, or putting the extra into your mortgage repayments will drastically reduce your mortgage, especially if you can pay a bit extra during the life of the loan. Not only will you save on interest, you’ll be building up a buffer in case something happens.
Another option is to renovate or extend your home to add more value. The property market has shown a steady increase over time, so the money you sink into your property will pay off in the end.
If you work from home, have a side business or have your own a full time business, it may pay to purchase some new equipment. Work-related items can be written off as a tax deduction on the following year if they cost $300 or less. These items include desks, chairs, computer software, work-related books and journals. If you plan ahead and purchase these items at the end of the financial year, you’ll get the full benefit of the tax deduction. If the item is over $300, you can depreciate the items over time and your depreciation calculation will cover more time and a bigger deduction on your next tax return.
If you run a business, the temporary full expensing has been extended to 30 June 2023. This allows you to claim an immediate tax deduction for the business portion of the cost of an asset for taxable purposes. Criteria and rules apply.
ITP Tax Accountants not only help reduce your taxable income, they also help plan how to make the best from your tax return money, as well as make other investments. Chat with one of our friendly professionals to see how you can reduce your tax bill this year and also plan ahead to always keep your tax bill down to a minimum.