How to make the most of Budget tax windfall

TAX cuts unveiled in last week’s Federal Budget give millions of Australians the chance to make that money multiply in value.

The nature of the tax cut – in the form of an offset at tax time rather than being drip-fed through regular wages – means 10.1 million workers will each receive up to $1080 via a tax refund from July.

In a Budget that lacked bigticket initiatives for savers, investors and super fund members, the tax cuts could soon deliver a working couple up to $2160 and unlock several strategies to make it count.

Dixon Advisory managing director Nerida Cole said people often used tax refunds to improve their financial position by repaying debts, investing or saving the money, or building a buffer in their mortgage.

“The average refund is about $2500, and if you get $1000 on top of that it’s a sizeable amount that can make a big difference,” she said.

The full $1080 of tax relief will go to 4.5 million individuals who earn taxable income between $48,000 and $90,000. It gradually reduces to zero for people with income above $126,000, while lower-income workers also receive less.

Labor last week promised to match the Coalition tax cuts, and to increase the size of tax cuts for workers earning less than $48,000 a year.

Ms Cole said some people could use the tax cut for the superannuation cocontribution, which pumped up to $500 of government money into their super, or a spouse contribution that delivered tax offsets up to $540.

“You can double up on incentives from the government to use the system to your advantage,” she said.

H & R Block director of tax communications Mark Chapman said the tax cut was “much more tangible” rather than simply saving $10 or $20 a week through wages.

“From the ATO’s perspective it’s really great, because more people will lodge their tax returns and will do it sooner,” he said.

Superannuation was left largely unchanged in the Budget, apart from some small tweaks to give people aged 65 and 66 more flexibility to make contributions.

The Financial Services Council welcomed the pause in super tinkering, saying it would increase consumer confidence and encourage people to be engaged with their super.