It’s that time of year again.
The 31 October deadline for lodging individual tax returns, or putting in place an arrangement to lodge through a tax agent, has passed and many people will soon receive or already have received a tax refund.
Around 9.5 million Australians have already lodged their tax return.
Each year more than 10 million Australians receive a total of around $25 billion in tax refunds from the Australian Taxation Office.
This provides individuals with an opportunity to boost their retirement savings. The median tax refund is around $1,400 and around 80 per cent of individuals who lodge a return get a refund.
For a person on earnings of $60,000 a year the median amount is around $1,300 while for a person on $130,000 a year the median amount is $2,500.
The Association of Superannuation Funds of Australia (ASFA) today said investing your tax refund in your super would help you reap the rewards of compound interest.
“As tempting as it can be to splurge your tax refund on short-term indulgences, it really makes sense to set it aside for your future, via super,” ASFA CEO Dr Martin Fahy said.
“You’ll get a better return on your tax return.”
It makes sense to ‘double up’ with your tax refund and make a tax deductible contribution to your superannuation fund.
Changes to the tax law that came into effect on 1 July 2017 allow any individual to make a tax deductible contribution to their superannuation (subject to their annual contribution cap).
If a 35-year-old person puts their tax refund of $1,400 into super each year, they would have an extra $65,000 at retirement (age 67).
If a 45-year-old person puts their tax refund into super each year, they would have an extra $37,000 at retirement (age 67).
Dr Fahy said the magic of compound interest was compelling.
Compound interest is the addition of interest to the principal sum of a deposit, or in other words, interest on interest.
It’s the result of re-investing interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Even small amounts grow quickly and pay dividends.
So consider turbo charging your tax refund to provide a better retirement lifestyle for yourself.
For further information, please contact:
Teresa Mullan, Media Manager, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity. We focus on the issues that affect the entire superannuation system and represent more than 90 per cent of the 14.8 million Australians with superannuation.