So, if you’re one of the lucky ones (otherwise known as someone who ended up paying more taxes than necessary), you may find yourself with a welcome bundle headed your way.
Some people have that flicker of slight indecision about what to do with the delightful cash injection – holidays and ‘treat-yo-self’ options are generally on the one hand, and the slightly more sensible mortgage repayments and investments could be on the other. So, we were curious. What are some of the finance gurus we know planning on doing with the money they may receive back from their tax returns?
Naturally, the following responses are based on our contributors’ experiences and personal circumstances and this article is not intended as personal or general advice. Remember, it is always a good idea to consult with a professional advisor for more personalised recommendations which may take into account your personal circumstances and what might be right for you.
Michael McCarthy – Chief Market Strategist at CMC Markets
“In some years a tax refund is a minor affair – good for a nice meal with a special person or that pair of shoes you’ve had in mind. However, sometimes there are substantial sums involved. Personally, I treat these as a windfall and tend to split them in three.
One third goes ‘on the pile’, adding to existing investments, paying down the mortgage or in a one-off contribution to the super fund.
The next third is frankly, frittered away. Clothes, that gadget I’ve lusted after, in a good year it might pay for a holiday trip. While I love my work, I work to live.
The last third allows me to do what I normally avoid. I take highly speculative ‘investment’ positions. These are characterised by extreme risk and outrageous potential payouts. Tiny biotech stocks, exotic mineral explorers or tech start-ups run by that nutty professor I used to work with are just the beginning. Think multi-leg all up wagers, lotto tickets or a big bet on my team to lift the cup. This is money I’m prepared to lose. While it hasn’t made me wealthy, there is the occasional pleasant surprise.
And then there are the years when the taxman sends me a bill…….”
Michael McCarthy is Chief Market Strategist for CMC Markets where he is responsible for global and local market analysis, formulating trading strategies and playing a key role in education.
Mr McCarthy has 30 years of experience in financial markets specialising in equity trading, derivative trading and trader education.
An experienced trader, market strategist, media representative, presenter, writer, educator and facilitator, Mr McCarthy regularly appears on ABC, ABC24, BBC, Bloomberg, CNBC, SBS, SKY, Sky Business and TEN.
Anthony Keane – Personal Finance Writer at News Corp
“The average tax refund in Australia is around $2,500, which gives most people a fair amount to spend, save or invest. While the best guaranteed financial return comes from paying down credit card debt – equal to an annual return of about 19% based on current interest rates, a smart long-term move could be to invest at least some in growth assets such as shares or property, but also remember to enjoy some of it doing or buying something you love.
My tax refund will be split between investment and fun this year. Part will go towards building a bigger stake in some global shares, which have sparkled for several years and experts say look set to continue to impress for a while yet. And part will be put towards some yet-to-be booked travel, because one of the best things that money does is deliver memorable life experiences.”
Anthony Keane is a Personal Finance Writer at News Corp, with articles regularly seen on News.com.au, and in The Daily Telegraph and The Courier Mail. Anthony writes articles on a range of personal finance topics from superannuation and investments to insurances and taxes. You can follow him on Twitter: @keanemoney.
Julia Lee – Equities Strategist at Bell Direct
“While most people would welcome a tax refund, for an investor it means that they may not have made significant money during the year. It could be a sign to revisit the investment strategy. Having said that a lump sum can be a great opportunity to increase savings and investment.
I know it might sound boring to some people but I think savings and investments are important because it gives me a buffer against tough times and helps me build towards financial security. With two beautiful young children, financial security is a top priority for us.
I’d most likely put money received from a tax return in a high yielding account until I saw an opportunity to put the money to work in the sharemarket. Alternatively, I might put the money in an Exchange Traded Fund that invests in global equities. Like many investors, I tend to have a home bias and invest most of my capital into Australian-based investments.”
Julia Lee is an Equity Strategist with Bell Direct with over 17 years’ experience in financial markets.
She is the host for the show Equity Investor on the SKY Business channel and is also a frequent speaker at industry conferences and events and speaks regularly for the ASX, Australian Shareholders Association and Australian Investors Associations.
Julia Lee is on the board of directors for the Australian Stockbrokers Foundation. She has her Master of Business in Finance (MBus) and is an accredited Derivatives Adviser 2 (ADA2(ASX)).
Josh Sale – Senior Research Analyst at Canstar
“What you do with a large sum of unexpected cash will likely depend on your life stage and current objectives. The best example I’ve got of ‘what not to do with your tax return’ is from when I was young and obligation free – I thought it would be a good idea to join a racing syndicate and invest in a horse. Not something I’d suggest if you are looking for steady returns.
These days, I’m a bit more conservative. If I had any high cost debt, such as credit cards or car loans, I’d put the whole return towards paying these down. A dollar saved is as good as a dollar earned, so if I can reduce a recurring interest bill, I will.
This year, the most compelling option for me looks to be taking advantage of the government’s First Home Super Saver Scheme. By using my tax return to fund a voluntary concessional contribution into my superannuation fund, I may be able to reduce my tax liability for the new financial year while growing a house deposit.
While buying a house isn’t on my immediate horizon, the biggest risk for someone in my position using this scheme is that they will choose to not buy a house in the future, in which case I’ve improved my retirement savings. You’d need to buy a pretty good horse to get that sort of outcome.”
Josh Sale is a Senior Research Analyst at Canstar, responsible for the continued methodology development and delivery of Canstar’s flagship star ratings. With tertiary qualifications in economics and finance, he gets a kick out of helping Australians find better financial products by transforming millions of rows of calculations into a consumer-friendly star rating.
Josh Golombick – Co-Founder Plenty Wealth
“In my experience, found money is ‘oh so much sweeter’ than earnt money. That $50 note found on the floor once every decade is almost always spent on either dining out, clothes or scratchie tickets.
Tax refunds feels the same –with my first “real’ job close to a decade ago I got a $2,000 tax refund and bought a shiny new set of golf clubs. This was a mistake I was destined to repeat with my following two refunds.
It took a change of mindset for me see the error of my ways – with my fourth refund I finally sat down and did the math and realised that if I had invested all my refunds I would have had over $10,000 in savings (that would be $15,000 today). Unfortunately, it was too late for me as a change of career trajectory would mean no more refunds for me. Don’t make the same mistake as I did. I learnt:
- Refunds are hard-earned money – not found money – and should be treated as such.
- Invest wisely – your refund money doesn’t have to go to a bank account earning 1.5% anymore; there are some great low-cost digital tools out there that can help with your money.”
Josh Golombick is the co-founder of Plenty, an automated online financial advice service. He launched Plenty after working in an equity research team at UBS Investment Bank and starting up lead-generation platform White Collar Quotes. Josh has a Bachelor of Commerce (Honours) from the University of New South Wales.
To the extent that any information or recommendations in this article constitute general advice, this advice has been prepared by Canstar Research Pty Ltd ABN 29 114 422 909 AFSL and ACL 437917 (“Canstar”) and does not take into account your individual investment objectives, financial circumstances or needs. Consider whether this advice is right for you. For more information, read Canstar’s Financial Services Guide (FSG), detailed disclosure, important notes and liability disclaimer.
Canstar in giving you information is not making any suggestion or recommendation to you about a particular product. Canstar is not authorised or registered to provide tax advice. Canstar does not provide legal or accounting advice. This article has been prepared for information purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. We recommend you seek advice from a qualified and registered (where applicable) professional adviser before making any financial or purchase decision.
The views, opinions, and positions expressed in this piece are the views of the guest author or interviewee alone, and do not necessarily reflect the views of Canstar.
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