How to get an extra $2000 back in your tax refund


For those who need an extra reason to submit their tax return before the October 31 deadline, here's one: nearly $2000 tax back when you lodge your return.

Low and Middle Income Tax Offset

Back in last October's Federal Budget, the government announced a series of tax cuts which mean that those who lodge their tax return this year should expect a bumper return.

how to get a bigger tax refund

That's because of the low and middle income tax offset and also the change in tax thresholds from July 1, 2020.

An individual earning around $80,000 should expect to come away with a final tax position that's about $1500 better than it would be otherwise, through a combination of a tax offset and a reduction in the amount of tax payable.

Of that $1500, around $1080 is due to the extension of the low and middle income tax offset into the 2020/21 tax year. The way this offset works is relatively simple.

If your income is less than $126,000, you'll get at least some or all of the offset. For those who earn less than $37,000, the offset is $255. If you earn between $37,000 and $48,000, the offset will increase up to a maximum of $1080.

Those with annual incomes of between $48,000 and $90,000 will receive the full $1080 offset. However, those who earn more than $90,000 will see the offset gradually fade out.

If you earn more than $126,000 a year, you won't get any offset on your tax payable for the year.

Importantly, you must lodge your tax return in order to get the offset.

Changes to the tax thresholds

This offset isn't the only reason to raise your expectations when it comes to your tax return this year. Also in last year's Federal Budget, the government brought forward from 2022-23 a series of changes in tax thresholds.

As the tax cuts were backdated to the beginning of the tax year (July 1, 2020), you stand to see a boost when you lodge your tax return.

These changes see the 19% tax threshold shift from $37,000 to $45,000. Meanwhile, the 32.5% tax bracket (which previously applied from $37,001-$90,000) was extended to cover taxable income between $45,001-$120,000. The 37% tax bracket will only kick in from $120,001.

As a result of these shifts in Australia's various tax brackets, those who earned close to the upper or lower limits of a given bracket may now have changed brackets.

Since these new tax rates were introduced from the first pay period after the law introducing the tax cuts was passed (in mid-October 2020) but they actually cover income back to July 1, 2020, it's estimated that an Australian on a salary of around $80,000 should expect to receive around $400-$450 in tax back, depending on when your employer passed on the cuts.

Be smart when claiming working from home deductions

In addition, it pays to get smart when claiming working from home expenses. You have a choice of three different methods for making your claim; the 80 cent per hour flat rate, the 52 cent per hour flat rate or the 'actual' method.

Crucially, while it may sound like the most generous, the 80 cent rate does not allow you to claim anything else for working from home. The 52 cent rate however allows you to make separate claims for the work-related proportion of items such as your home internet, mobile phone costs, depreciation of computer equipment, stationery and printer ink.

For someone working from home for the entire tax year, that could amount to about $1200 in extra deductions, which equals $390 in extra tax (at the 32.5% tax rate).

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.