An investment success contributor: tax refund – apportioning its contributing components and depositing them to the appropriate account!
Ever thought about why you receive a tax refund?
Has your next thought been about how best to use that refund?
The answer to the first question is simply that you have paid more tax during the year than the tax payable on your final taxable income required. But why was that the case?
Perhaps you consciously asked that extra tax be taken from your regular income so that you would get a more substantial lump sum at the end of the year. Or perhaps you have made a negatively-geared investment that has increased the amount of your refund? There is a myriad of circumstances that could have put you in this situation.
If you planned for a tax refund in the first place, that is a great start. Did it arise somewhat unexpectedly? You need to think about how to ‘get it right’ for next year.
If you had extra tax deducted throughout the year so as to boost the refunded amount, you probably had a plan as to how you would use it: holidays, Christmas gifts, debt reduction, special event or so on. Put your plan to effect as soon as possible after the refund is credited to your account.
Two aspects of the investment success contribution of a tax refund are –
- reducing the gearing costs of investments where appropriate, but as importantly
- providing a source of funds to invest.
The fact is that you now have an opportunity to make good use of the tax refund – regardless of what brought it about. You may even become a little ‘accountant-anal’ about it and divide the refund into segments.
If for instance, the refund has arisen from tax deductions from gearing of investments, business tax deductions or expenses of a concessional nature – try to allocate the refund to the ‘accounts’ from which it arose. Whilst it is tempting to see the refund as something different when it sits there as a teasing lump sum, stay true to your original strategy and use it to either reduce the relevant debt, or to service it in the new term; to restore education accounts; or whatever the source may have been in your case.
As with any financial advantage you come upon, make sure the opportunity presented by a lump sum is used wisely and not wasted – and ensure you plan for next year’s refund by organising the detail early in the year. Work on contributing it to investment success in your plan.
Looking for guidance in sourcing investment funds?
The experienced team at Continuum Financial Planners Pty Ltd work to the mantra that – ‘we listen, we understand, and we provide solutions’. To arrange a meeting with a team member –
- phone our office on 07 3421 3456; or
- at your convenience, use our linked Book A Meeting facility.
(This article was first published by us in July 2012. It has occasionally been refreshed/ updated, most recently in January 2025.)
