How to get more from your tax refund

For many Australians, tax time is a significant opportunity to reflect on personal finances and typically brings about the prospect of a welcome tax refund.

In fact, according to most recent data, the average tax refund in the 2023-24 financial year was approximately $2962, a tidy sum of cash that usually find itself lodged into a standard savings account or simply splashed out on non-essentials.

However, for those familiar with investing, a tax refund presents an opportunity to either top up an existing investment portfolio or get started investing.

So, how can you make your refund work harder for you and build long-term wealth whilst avoiding the temptation to 'time the market' or take concentrated bets on risky securities?

The team at Betashares Direct has sought to answer this exact question and demonstrate how the average tax refund can form the foundations of significant long-term returns and grow over time.

To do this, we ran some calculations using the average approximate refund and a simple allocation to one of Australia's biggest ETFs. The simulated results showed that if an investor last year (on July 1, 2024) had placed their $2962into an investment solution like the Betashares Australia 200 ETF (ASX: A200), it would have been worth $3374 on June 30, 2025.

Almost 14% growth in one year -and even over the five years to June 30, 2025, A200 had a total return of around 12% p.a. (assuming reinvestment of distributions and not taking into account transaction costs).

Of course, it's important to remember that past performance is not indicative of future performance, and this example has been provided for illustrative purposes only.

Whilst this is already a good result in terms of investment returns, by simply implementing a dollar-cost averaging strategy for the price of your morning coffee, these results get even more impressive.

Interestingly, with an additional $25 a week investment into the same fund, an investor would have seen their refund grow to $4759 over that same year through the power of consistency and compounding.

Investors implementing this sort of strategy need to be mindful of brokerage costs and look for investment platforms, like Betashares Direct, that offer brokerage-free investing and automated investing.

Also, investors should do their homework before investing, including to ensure they choose the right investment and determining whether such an investment approach aligns with their own goals and objectives.

Given interest rates are forecast to drop further in the coming months, with many predicting multiple cuts this year, term deposits are increasingly looking like an unattractive option for Aussies looking for attractive returns.

To that end, for those looking to put their money to work through other types of investments, ETFs could be a good option to help build a more 'well-rounded' investment portfolio.

For those considering investing their refund this tax season, it is worth taking a long-term view to the investment, as this could reap even bigger rewards over time. In fact, if we return to the earlier example, that same $2962 invested in A200 just five years ago would now be worth $5229.

If you had gone further and invested an additional $25 a week over that period, you would now be sitting on $13,546. No market timing, just a disciplined, long-term approach.

While this example is only illustrative, it shows the power of taking a long-term view on an investment portfolio.

Over time, a diversified investment portfolio containing exposure to equities and bonds, while looking for ways to reduce management fees and brokerage, can potentially help to grow your wealth.

As we head into tax season, it is worth noting that the power of compounding and sustained commitment to building wealth are as relevant to new investors as they are to those more seasoned, providing real and impressive results.

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