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Some ways to use your tax refund for a stronger financial future

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Whether you breeze through tax time or dread the extra admin, receiving a tax refund makes the effort worthwhile.

For many of us, getting a financial boost will be even more welcome this year, and you might be looking around for the best ways to use it.

These simple actions can help you figure out how to make a plan for your tax return. And if you’re looking for inspiration for how to spend it, we suggest some ideas to consider, too.

Plan to succeed

Never underestimate the power of a well-crafted plan – it’s easy to watch funds dwindle when you haven’t given them a clear direction. Recent research has revealed that 81% of us admit to splurging an average of $1,430 annually as a result of comfort spending and that one in six Australians struggle with credit card debt.

Like any goal, your ambitions for this year’s tax return can be more easily realised if you have a concrete plan in place. In fact, studies have found that taking the time to write down your goals and plans can actually improve your chances of making them happen.

Once you’ve lodged your tax return, you should have a decent idea about the amount of your refund. Use the time before you receive the money to give yourself a financial check-up and decide exactly where you plan to put your tax refund to avoid excitement spending once it lands in your account. This includes any money you’re hoping to use for a holiday or other splurge – work it into your financial plan to avoid spending beyond your means.

Anticipate your upcoming living expenses

When making your plan, you might want to consider your upcoming living expenses, particularly any large, irregular bills such as car insurance and registration costs, utility bills and general home maintenance.

Putting aside some of your tax return as a cushion for upcoming expenses or an emergency fund helps you avoid reaching for other financial support – such as personal loans and credit cards – when the bills start to build up.

Reduce outstanding debt

If you have some debt to pay down, you’re not alone: the average Australian household debt-to-income ratio is around 190%, meaning we owe almost twice as much as we earn each year. Putting your tax return towards any outstanding debts, including mortgage repayments, personal loans and any credit card debt may help reduce any interest charges.

Invest in growing your wealth

If you don’t need the money for immediate expenses, paying off debt (or the occasional luxury), you might be looking to make a long-term investment with the extra money. You might consider contributing some or all of your refund to boost your super, or add it to a term deposit or savings account.

Make tax-deductible purchases

If you’ve been holding off buying specific equipment for work, such as a new laptop or desk, now could be a good time to make the purchase. For purchases over $300, tax deductions are calculated on the depreciation of the ‘effective life’ of the item. If you purchase them at the beginning of a financial year, the item has almost a full year to depreciate before you do your next tax return.

Donate to a charity

Although this has been one of the most difficult years in living memory, Australians have shown extraordinary generosity by donating to bushfire appeals and other charities. If you plan to support a charity or not-for-profit organisation, don’t forget that any donations over $2 to eligible organisations in Australia are tax deductible. Just remember to keep a receipt for when you start preparing next year’s tax return.

Source: AMP Insights

HomeBuilder grant

Are you eligible for the HomeBuilder grant?

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Available for a limited time, the HomeBuilder grant offers eligible owner-occupiers, including first-home buyers, a potential tax-free $25,000 boost to help fund the cost of building a new home or substantially renovating an existing home.

Although not specifically targeted at first-home buyers, the Government expects the HomeBuilder grant will be popular with first-home buyers looking to buy a house and land package, as well as growing families upgrading to a bigger new home.

It could also spark interest for retirees who might see this as a trigger to downsize their home, using the grant to help purchase a new smaller apartment or unit, and potentially the money saved to invest into their retirement fund.

As with any Government grant program, there are rules around who is eligible and the type of renovations or properties you can use the money for.

Deciding if you’re eligible

The first and most simple criteria for the Homebuilder grant is that you must be an owner-occupier. If you tick that box, and you’re someone looking to build or renovate your home, you must also meet the following criteria.

  • Be an Australian citizen aged 18 or over.
  • Have an annual income less than $125,000 for individuals or less than $200,000 for couples (based on your 2018/19 (or later) tax return).
  • Planning an appropriate renovation or new build

The Government has defined strict price caps for renovations and new builds to ensure the HomeBuilder scheme sits in-line with other programs already operating in Australia.

  • Substantial renovations – the planned cost of a renovation must be between $150,000 and $750,000, and the value of the property being renovated should be less than $1.5 million when work begins.
  • New builds – the purchase value of new homes (house and land combined) must not exceed $750,000. This also applies to new homes bought off-the-plan.

In addition, all building contracts must be entered into at arm’s length. This means the builder you choose cannot be a relative for example, and you cannot be an owner-builder.

Types of property eligible for the HomeBuilder grant

Good news – this is the most flexible part of the HomeBuilder scheme. Whether you own a house or apartment, or you’re buying a new house and land package or a property off-the-plan, all are eligible types of dwelling.

However, you must live in (or plan to live in) the property, ie you’re an owner-occupier. The HomeBuilder grant is not available to investors looking to renovate or those wanting to build a new home to use as an investment property.

Defining ‘substantial renovations’

In simple terms, the renovations you undertake must improve the liveability, accessibility or safety of your home. And the changes or additions must be connected to the main property.
While there isn’t an exhaustive list of do’s and don’ts, here are a few things that aren’t considered improvements.

  • Tennis courts
  • Swimming pool
  • Spas and saunas
  • Sheds or garages not connected to the property

Given that the scale of required renovations far exceeds just painting walls and replacing carpets, the work must be carried out by a licensed or registered builder. Also, the terms of any contract should be commercially reasonable and the contract price should reflect fair market value and not be inflated to ensure it fits within the imposed price boundaries.

The HomeBuilder grant is only available for a limited time, so if you’re thinking of applying there’s no time to lose.

Source: BT