Why It's Best To Invest Your Tax Refunds

It's tax season again and those who will be getting a refund after they file their returns should consider using their money to invest in property, an expert said.

Lloyd Edge (pictured), director of Aus Property Professionals and author of Positively Geared, said that Australians can use their refunds to give their homes or investment properties much-needed updates to boost their value.

"A general paint job throughout and updating the floor coverings and windows coverings will add both value and increase rental yields," he said.

Mr Edge said using the money from refunds to update the kitchen and bathroom would also be a wise move, given that these renovation projects are the most expensive to do.

"Depending on your tax return, upgrading, not replacing these wet areas would be much more cost-effective. You can replace the bench-tops, cabinetry handles, and even paint the tiles, or replace the kitchen splash-back," he said.

It is also possible for Australians to fund their next purchase with their tax refunds. Mr Edge said the best properties to target are in the regional markets.

Properties in regional areas require smaller deposits and have lower stamp duty costs. Mr Edge said they also have higher rental yields, which will be good for cash flow and serviceability should investors want to acquire another property later on.

While regional properties are generally cheaper, would-be investors should still consider drivers for economic growth.

"That is, a diverse range of industries, lots of amenities, jobs growth, rising population and Govt spending. I also like to look for areas that have universities, hospitals, and good schools. It's all about where people want to live so therefore you should be targeting areas with low vacancy rates," Mr Edge said.

Some of the markets Mr Edge recommends looking into include New South Wales' Newcastle, Orange, and Armidale, Queensland's Sunshine Coast, and Victoria's Geelong, Ballarat, and Bendigo.

Mr Edge, however, encouraged Australians to deal with things that could put them in a better financial position first before investing.

“If people get a tax refund, they should use it wisely, perhaps to pay off some debt such as credit cards, which can put them in a better position financially so they can get a loan to buy property later on. There is no point having 5% returns on an investment property if they are paying 15% or even more on credit card interest,” he said.

Filing for returns

While some Australians are still busy preparing for their tax returns, Mr Edge said it is crucial that they know what they can claim. To find out how much your income tax would be use our income tax calculator.

Due to the COVID-19 restrictions, Mr Edge said some might be eligible for some extra deductions, especially if they are working from home.

"Australians should see an accountant or tax agent to seek advice as there may be numerous things they can claim, beyond just working from home. Advice around everything they can claim is very important to ensure they are not leaving money on the table," he said.