tax refund wisdom - a textcloudTax refund wisdom enhances wealth management

Tax refund wisdom is exercised when you use your refund effectively and in recognition of how your taxable income has been calculated – and hopefully, strategically – and you recognise that it isn’t a gift from the ATO (or from the government)! It ensures that the refund isn’t ‘wasted’ on discretionary spending, rather sees it used to enhance the attainment of financial goals. You receive a tax refund because at some period in the past you have paid more tax to the ATO than was required for the financial period concerned.

As we reveal below, utilising the tax refund to deliberately offset (subsidise) the costs that give rise to the refund, can be used in a strategic way to enhance wealth accumulation.

Tax refund wisdom: planned, or unexpected?

The overpayment of tax that gives rise to a tax refund might have been for a number of reasons, including –

  • The conscious decision to have more tax deducted than the schedules provide (a planned savings strategy);
  • Having more than one job or source of income and the tax on the withheld on some of that income has been at a higher rate than required (somewhat an unexpected occupational ‘hazard’);
  • You may have decided to not request the ATO to approve a lower rate of withholding because of deductible expenses for:
    • Interest expense for investment asset acquisition (shares/ managed funds portfolio; investment property; etc);
    • Income Protection Insurance premium costs;
    • Work/ business related expenditure for vehicles and other equipment; or
    • A range of other tax-deductible costs/ expenses. (all planned scenarios)

Tax refund allocation

Whatever has given rise to your tax refund, care should be exercised as to how you put that refund to use. If the refund is related to some of the so-called planned events above, consider using the refund to –

  • meet a specific financial goal you had in mind when requesting the increased tax withheld (holiday, car, furniture etc);
  • reduce your debt or to help fund the cost for the following year (of interest borrowed for making an investment); or
  • consider starting an investment portfolio.

For more ideas on the prudent use of the refund you next receive, the following articles may be of interest:

Seek reassurance in advice

The advisers at Continuum Financial Planners Pty Ltd are experienced in an extensive range of investment/ wealth management strategies. To arrange a meeting to discuss your wealth management plan, including utilising your tax refund wisely, please call us on 07 34213456; or complete the Contact Us form on our website – and be assured of prompt and courteous attention.

Originally posted in July 2013, this article has been occasionally updated/ refreshed, most recently in January 2021.