As announced in the recent Federal Budget, the Education Tax Refund has been abolished and will be replaced with the Schoolkids Bonus from January 2013.  Instead of claiming the refund via the year-end tax return,  it is estimated that over 1.2 million Australian families will receive the 2011/12 entitlement in full - $818 for each secondary school student and $409 for each primary school student.  The payments will be made from 20 to 29 June 2012.  I am predicting that these payments will be as good for the economy as the $900 stimulus payments a few years ago.

For those that are fortunate enough to receive it, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2012-13 edition (Wrightbooks, June 2012, AU$24.95), gives us nine smart places to use the one-off payment:

1. Education – whilst you can spend the money on anything, the primary purpose of the education tax refund was to assist your children with their schooling.  The best investment you can make is for their education, so consider buying them a computer or some other technology that will help them with their studies.

2. Super co-contribution - The thought of superannuation may be dull and boring particularly for your teenage kids but it is one of the best investments that they could ever make.  If they have a part-time job, then you can put up to $1,000 into their super fund before 30 June and the Government will match it dollar for dollar via the super co-contribution.  The quicker they can build up their nest egg, the less risks that they will need to take later in life.  I know it is cheeky but it is within the rules and is a great way to double the education tax refund to $1,616 for secondary school students.

3. Money makes money - There are some excellent interest rates being offered at the moment online.  Go to comparison websites such as www.ratecity.com.au and www.mozo.com.au to see what the banks currently have to offer.  With the RBA hinting at lowering rates over the next few months it might be an idea to lock in a good term deposit rate in your child’s name. Be careful though as children can only earn $416 in interest each year before they get slugged with the highest tax rate of 46.5%.

4. Get a financial plan - Just like fingerprints, everyone’s financial goals and needs are different so if you have quite a bit in savings then it might be an excellent idea to see a financial adviser who can tailor a plan specifically for your family.  Make sure that you don’t get suckered into reaching for the stars because you might be taking on risks that are not right for you.  Increased risk comes with chasing high returns. 

5. Cover yourself – We all know someone that has died unexpectedly before they have turned 65.  If you have a mortgage and a young family, then do yourself a favour and get yourself a life insurance policy.  It could be the best investment that you ever make for your family.

6. Annual one-off expenses - such as the car rego, council rates and insurance – these expenses always pop up when families are struggling for cash and make a huge dent when they we get them.

7. Pay off your debt - The very first thing to do when you come into money is to pay off your debts starting with those with the highest interest rate.  There is no point earning 5.5% with a term deposit if you are paying 20% on your credit card debt.  All debt is bad debt but make sure you pay off the non-tax deductible debt first.

8. Christmas presents – How many sleeps til Santa arrives?  It’s getting close.  Avoid the January credit card hangover by buying all your presents during the end of financial year sales.  You will feel a lot better for it.

9. Save for a rainy day - What would happen if here is a GFC Mark II?  Last time the Government bailed us out with their timulus packages but we may not be so lucky next time around.  Don’t get caught out.  All good emergency plans should have a minimum of three onths’ worth of living expenses put aside in case of job loss or injury. Don’t stress if you don’t have enough funds now.  Simply start putting a regular amount aside from every pay.  But remain disciplined and don’t access these funds until you have to! 

These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2012-13 edition (Wrightbooks, June 2012, AU$24.95RRP).

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