Australians earmark tax refunds for debt reduction
By Sarah Watson
Happy New [financial] Year! And while this is not quite party season – rather, it is tax time – more than 64 per cent of us expect to receive a tax refund for the 2013/2014 financial year, according to the latest Homeloans survey1. That may be cause to party (or at least make things easier to bear!)
So for those of us who are expecting to receive a tax refund, how is it likely to be spent? Well the survey results show that most are likely to use the funds to pay down existing debt, such as mortgages or credit cards.
When asked to identify all the ways they would spend a tax refund, 21 per cent of survey respondents said they would use it to pay down their mortgage, while one in three said they would put it towards other debt such as their credit card. Just over one quarter (26 per cent) said they would invest any refund or put it into a savings account rather than spend it.
The Homeloans poll also showed that Australian debt reduction and investing aren’t the only strategies on the list when it comes to tax refunds. Holidays and house renovations (18 per cent and 13 per cent respectively) were also on respondents’ wish lists.
The Australian Bureau of Statistics reported in May 20142 that household debt in Australia is at its highest level since 1988. Australians owe $1.8 trillion to lenders – a figure that is the equivalent of $80,000 per person.
“Yet the results of our survey show that far from being irresponsible with their money, Australians are aware of the need to get their debt under control, while shopping and holidaying are secondary considerations,” says Homeloans’ national marketing manager Will Keall.
Average tax refund
In the 2012/2013 financial year, the average Australian taxpayer received a tax return of around $2000, according to the Australian Tax Office.
“A sum of $2000 can make a big difference when paying off a credit card or making a dent in your mortgage,” says Keall. “Tax time is an opportunity to take stock of your finances and to look at how any extra funds can benefit your financial situation.”
The Homeloans survey also revealed that nearly one-third (31 per cent) of respondents complete their tax return themselves, something the ATO is hoping to assist with through the introduction of myTAX this year – an online tax return service featuring pre-filled entries, which caters to those with simple tax affairs.
Other respondents of the survey said they intend to put their refund towards paying off their HECS debt, bolstering maternity leave savings, childcare or school fees, weddings and honeymoons, council/land rates, and buying solar panels for the home.
Other findings of the Homeloans survey included:
- 34 per cent of those aged 18-24 will put the refund towards a holiday compared to 18 per cent of 35-55 year-olds
- More than one quarter of those aged 18-24 will put it towards paying off other debt – e.g. credit cards
- 29 per cent of those aged 45-64 will put the refund towards reducing their mortgage compared to 16 per cent of 18-24 year-olds
- 25 per cent of 25-34 year-olds are more likely to put a refund to towards house renovations than any other age group
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.
1 The online survey was completed by more than 750 people in May/June 2014
2 Australian Bureau of Statistics May 2014