The beginning of July marked the start of tax season in South Africa. One of the most compelling reasons to file a tax return is that if you have overpaid or over-estimated on your tax, the South African Revenue Services might be paying you back some extra money.
This may be the case for those who did not work for the full tax year, received allowances, changed jobs during the period, or contributed to medical aid and/ or retirement funds.
“If you are fortunate to receive a tax refund, it may be likely you hadn’t budgeted on the extra cash, and so it is wise to spend it sensibly,” says James Williams, Head of Marketing for Wonga. “There are practical ways to spend your tax refund, such as saving for major expenses, settling debt or starting an emergency fund.”
“This year, consider that your tax refund could have a significant impact on your life and your finances,” he says. “It is possible to put aside your tax refunds, year after year, so you can cover future big-ticket expenses.”
“We are experiencing economically challenging times,” he warns. “Self-care is important and you may wish to treat yourself, but this may be the time to do something more practical with your money.”
Williams provides some useful tips on how to get the most out your tax refund this year and beyond:
1. Reduce your debt
Use your tax refund to settle or reduce debts that attract high interest rates, such as store cards, credit cards or personal loans. A small payment goes a long way to bring down your outstanding balance and reduce the amount of interest charged. Make payments on all your outstanding accounts, but prioritise overpayments on those with the highest interest rates, which will reduce the overall cost of the loan and potentially save you money in the long-term.
2. Boost your savings
Use your tax refund to boost your existing savings account or open one to start your savings journey. With a tax-free savings account that are available through most large financial institutions, you’re able to invest up to R36 000 per tax year to a maximum of R500 000 during your lifetime and not pay tax on any interest earned.
3. Improve your home
Use your tax refund to add value to one of your primary assets by looking at renovation or extension plans you’ve been wanting to start. Making improvements to your property adds value to your future potential selling price.
4. Save your tax refund for your children
Put away your tax refund to cover future big-ticket expenses for your children. Save your refund in a long term deposit or another safe long-term, interest-earning investment so that you can later use it for your kids’ tertiary education or their first car.
5. Pay it forward
Consider paying towards a charitable organisation to benefit your community, such as a children’s home, animal shelter, or a community centre that would appreciate funds to continue the service they provide to others.
“Whether your tax refund is large or small this year, try not to be tempted to splurge your money,” says Williams. “If you’ve covered all of the above, then reward yourself — but do so responsibly. You have an important decision to make about what to do with your refund, so take the time to make an informed, confident decision that you are comfortable with.”