Why your tax refund is so low

Australians are being warned to expect a scaled-down tax refund. Here's why.

This time last year, Australians were pocketing tax refunds nudging $3000. Happy days! But don't bank on your refund matching that figure this year.

An Australian Taxation Office (ATO) spokesperson says, "You may have a lower refund than expected or you may receive a tax bill."

One reason many of us may receive a 'lite' version of last year's refund is the scrapping of the low and middle income tax offset (LMITO).

The LMITO was worth as much as $1500, and applied to incomes up to $126,000.

With the death knell sounded on LMITO, the ATO offers a small degree of consolation. A low income tax offset (LITO) worth up to $700 is still available if you earn less than $66,667.

There are other reasons why your refund could be on the lean side.

You owe money to other government agencies

Lodging your tax return doesn't just square up personal income tax. It also determines if you've received the correct level of Centrelink support payments.

Any overpayments are automatically deducted from your refund, leaving you picking through the leftovers.

You have student debt

Repayments on student debt such as HECS-HELP kick in when your income reaches a minimum threshold - $48,361 for 2022/23, and $51,550 in the current financial year. The more you earn, the more you repay.

Workers are expected to let their boss know they owe a student debt. That way, employers can withhold extra money that goes towards debt repayments.

If you don't tell your employer about an outstanding student debt, a big chunk of your tax refund could be redirected to paying down the balance.

You worked more than one job

The first $18,200 of income is tax-free for Aussie residents.

The catch is that this tax-free threshold applies across your entire income, not across each job.

If you worked more than one job last financial year - as almost 1 million Australians did - it's possible at least one employer may have withheld insufficient tax unless you actively declared that you're not entitled to the tax-free threshold for that role.

Telling the boss for a second (or third) job that you're not eligible for the tax-free threshold won't help your refund this year, but it can spare you a refund shock in 2024.

You have a side gig

If you've picked up extra cash running a side hustle as a freelancer or working in the sharing economy as, say, an Uber driver, the earnings could blow out your taxable income without a corresponding uptick in tax payments.

In traditional employment arrangements the boss automatically deducts tax each pay day. That's not the case when you're self-employed.

The extra income from a side hustle can push you into a higher tax bracket, meaning you could lose a high percentage of gig income to tax. Worst case scenario, you could end up with a tax debt.

You don't have private health cover

Depending on your income, if you don't have private hospital cover you could be slugged with the Medicare levy surcharge (MLS), potentially wiping out a refund.

The MLS costs an extra 1-1.5% of your taxable income, on top of the standard 2% Medicare levy. For the 2022/23 financial year, it applies if your taxable income topped $90,000 for singles or $180,000 for a family combined.

You aren't claiming every deduction you're entitled to

It can be hard knowing which deductions you can legitimately claim on tax.

But as Elinor Kasapidis, CPA Australia's head of policy and advocacy, points out, "Failing to claim everything you're entitled to means less cash back at tax time."

She says taxpayers could miss out on thousands of dollars if they're not keeping the right records or don't know what to claim.

Kasapidis advises, "Don't throw away receipts and invoices - if in doubt, keep it and ask your tax agent."

The ATO website features A-Z guides of work-related tax deductions across different industries. However, Kasapidis says the most commonly overlooked tax deduction is the cost of professional tax advice.

She explains, "Some people might not think they can afford to hire a tax agent. But when it's a legitimate deduction you can claim every year, our message is, why wouldn't you?".

Think the tax man owes you more?

If you suspect the ATO has short-changed your tax refund, you can lodge an objection.

A time limit of two years typically applies, effective from the day after your notice of assessment is sent to you.

This could give you until 2025 to lodge an objection.

Why wait though? It can mean extra cash you probably need right now.

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