Were you one of the lucky taxpayers who received a tax refund from SARS after submitting your tax return? Take a moment to think about what you did with your tax refund last year, or the year before.

Do you even remember?

What should you be doing with your tax refund  to make it count?

If you contributed to a retirement annuity you most likely received a tax rebate, as the contribution was deducted from your taxable income.

For example:  if your taxable income is R300 000 a year and you contribute R60 000 a year (R5 000 a month) to a retirement annuity, your taxable income is reduced to R240 000.

• On a taxable income of R300 000 you pay R48 112 in tax
• On a taxable income of R240 000 you pay R32 511 in tax

You effectively save R15 600 in tax.

This is why we say the taxman helps pay for your retirement. However, this is only true if you invest that rebate into your retirement fund.  A tax refund should be used to boost your retirement fund, not give you more spending money.

If you receive a R10 000 tax refund each year and you invest it rather than spend it, after 20 years, based on a 10% return, it would be worth around R670 000.

If you have a lot of short-term debt it could make sense to settle one of your accounts with your rebate. However, make sure you don’t just end up in the same situation next year, using your rebate to fund this year’s spending.

If you settle a store card or personal loan, close it down and use the repayments that were servicing that loan to start saving. If your rebate is only enough to settle a portion of your credit card, at least reduce your credit limit to match your new outstanding balance and increase your monthly installments to pay off the card debt sooner.

A tax refund is a great opportunity to sort out some of those money issues – use it wisely.