Tax refund season is well underway, and if you’re one of the lucky ones, you will have received a sizeable tax refund that you can put towards whatever takes your fancy. If you’re not so lucky, you may be wondering why you ended up with a much smaller amount than usual. Or worse – owe the ATO money. Here are five possible reasons your tax refund was lower than you were hoping for.
#1 A second job has blown out your taxable income
If you have started a new side job (such a sharing economy gig on Uber, Deliveroo or Airtasker) or work as a sole trader, then you may not have realised that you needed to set aside tax yourself. Further, the additional income can sometimes push them into a higher tax bracket, which means you’ll have to pay a higher percentage of your overall earnings as tax. Once the ATO reconciles your how much tax you need to pay, it will automatically deduct any tax owing from your tax refund if there’s enough, otherwise you may be left with an amount owing to the ATO instead.
#2 Your boss is withholding too little from your wage
If your employer isn’t withholding enough tax proportionate to your income – which can sometimes be the case if you’ve received a bonus or had overtime push you into a higher tax bracket or over the HELP repayment threshold – then you may end up actually owing the ATO money after you lodge your tax return.
#3 You have existing government debts
If you have an existing Centrelink, ATO or Family Assistance Office debt, your tax refund will be used to pay off any amount that is currently outstanding – even if you have a payment arrangement already in place to pay this off.
#4 You have claimed the tax-free threshold for two or more jobs
Assuming you’re an Australian resident for tax purposes, the first $18,200 of your yearly income isn’t taxed. However, you’ll run into problems if you earn more than $18,200 during the year and work two jobs while claiming the tax-free threshold on both. Come tax time, it’s likely that you haven’t paid enough tax during the year, in which case you’ll end up with a much smaller refund than expected – and in some unfortunate cases, owe the ATO money.
#5 You’ve made a mistake on your tax return
There are a variety of errors you can make when filling out your tax return, including failing to declare assessable income (which includes allowances, bank interest and income earned overseas), claiming deductions you’re not eligible for, and lacking the necessary documentation to substantiate work-related deductions. The consequence is that you’ll have to pay back any overpayments, In some instances, the ATO can also charge interest charges and other financial penalties for incorrect lodgements.
If none of the above apply to you, and you’ve still got a disappointing refund, think of it like this: A big tax refund usually means you paid for work related expenses out of pocket or you paid too much tax through the year. On the other hand, if you have a smaller tax refund it usually means you had lower out of pocket expenses and you paid the right amount of tax.
Ultimately, a lower tax refund can often mean you’ve got more money in your pocket year-round and that can be a good thing. Your tax agent will help make sure that you get a fair refund, and it’s normal for the amount to go up and down from year to year – your tax refund will not always get bigger or stay the same.
Liz Russell is a Senior Tax Agent at Etax.com.au