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Investment success contributor: Tax Refund

An investment success contributor: tax refund apportioned to its contributing components – and deposited 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. If it just arose 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. If this was the case, put your plan to effect as soon as possible after the refund is credited to your account.

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.

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