It’s the time of year many Australians look forward to – when a lump sum payment from the tax office appears in your bank account.

But it’s important to keep in mind that your tax return money isn’t ‘free’ or a ‘bonus’ from the government - it was yours all along.

And with Australians receiving an average tax return of $2112, it’s a significant amount that could play a role in creating long-term financial security.

In an ASIC MoneySmart poll, 2000 Australians were asked how they used their tax refund. 29% per cent responded that they paid their bills, 21% saved the money, which could include being put towards a house deposit, while 16% didn’t receive a return and 13% paid off loans and credit cards.

With a windfall of funds landing in your bank account, it’s tempting to splash the cash on smashed avocado brunches, trips away, dining out, a new car, or social events.
However, here’s three ways Australians can put their tax to good use.

You could buy a home

There’s a lot of talk at the moment that owning a home is a fading dream for many Australians. Soaring house prices, the sizeable amount of money needed upfront to buy a home, are all factors hindering many first home buyers from breaking into the market.

Yes, a home deposit can be a sizeable amount of money, but many Australians don’t realise that a 20% deposit isn’t always required; in fact some lenders such as HomeStart have deposits starting from 3%.

Coupled with packages or deals with builders, this means your tax return could bring you close to owning a home in the near future. For example, through HomeStart if you buy an apartment-off the-plan you can get in for $5000, or with a home and land package upfront costs for as low as $3000.

This means your $2000 tax return could make a considerable impact on saving for your deposit and entering the property market sooner.
A 3% deposit loan equates to just $12,900 in deposit for a $430,000 property. Putting your $2000 tax return towards your home deposit means you’re well on your way to saving the deposit required. Not an amount to be sneered at!

Owning a home is known as the ‘great Australian dream’ – so why is your own home so desirable? Apart from being able to decorate the way your desire, have pets and the security of knowing you won’t be kicked out of a rental, research from Swinburne University found that buying a home had substantial benefits over renting with the main conclusion revealing that if you’re still renting by the time you hit middle age, there are higher chances you will struggle financially in retirement.

Tax return tip 1: while the amount needed for a home deposit can be hefty, putting your tax return towards your deposit may help you reach the amount required and get you into your own home sooner. Also look at lenders who offer low deposit options or off-the-plan and house and land packages, this can significantly decrease your upfront costs.

Create financial freedom

In the long term, high interest debt on credit cards and personal loans add up significantly. Furthermore if you continually need to pay off interest on personal loans, it will hamper your savings goals.

As of April 2017, there were almost 17 million credit cards in Australia, with each card holder having an average of $4,300 of debt.

Another personal loan that many Gen Ys harbor is HECS, a result of university study. A four-year Bachelor Degree costs, on average, between $18,000 and $30,000, leaving university graduates with a significant level of debt.

Tax return tip 2: consider paying down credit card and personal loan debt with your tax return. In the long term paying off these debts will allow you to focus on saving for big-ticket items such as a home.

Create an emergency fund

We know that life often throws up financial surprises - from car repairs, moving rental homes to medical appointments. This is when a stash of cash known as an ‘emergency fund’ comes in handy. Financial planners advise that you should aim to have at least one month’s salary in your fund.

Tax return tip 3: an emergency fund is useful to have in times when unexpected financial pressures arise, so you don’t have to rely on credit. Consider creating or adding to your emergency fund with your tax return.

Takeaway message

Bob Marley once said “if you don’t start somewhere, then you’re going nowhere”. This perfectly sums up saving for your home deposit, paying off your credit cards and personal loans, and creating an emergency fund.

If you don’t start saving, even if it’s putting away the smallest amounts, when will you ever get there? And that surprise cash you score in the middle of the year is a great way to get started, especially if you’re looking to buy your own home.