Every year, at Twenty Acres Accounting, we assist hundreds of clients with lodging their tax returns, and one of the most common questions we get, especially from new clients, is: “Why has my tax refund gone down?”
There isn’t one definitive answer to this, as multiple factors can lead to a reduction in your tax refund. In this article, we’ll explore some key reasons why your refund may have decreased and how you can navigate these situations.
1. The Low-Middle Income Tax Offset (LMITO) Ended
The Australian Taxation Office (ATO) introduced the Low-Middle Income Tax Offset (LMITO) to benefit low-to-average income earners, but it was only available from 2019 to 2023. Now that it’s no longer in effect, many taxpayers are seeing their refunds reduced—sometimes by as much as $1,000! If you’ve noticed a dip, it may be related to the end of LMITO. The solution? Ensure you’re maximizing all eligible deductions and keeping proper records. At Twenty Acres Accounting, we can help identify all deductions you qualify for.
2. Double-Claiming the Tax-Free Threshold
Employees are only eligible to claim the tax-free threshold for one job. If you’ve recently started a second job and mistakenly claimed the threshold on both these roles, it can automatically lower your refund. The simple fix? Only claim the tax-free threshold at the job where you earn the highest income. We at Twenty Acres Accounting can review your withholding arrangements to ensure everything is set up correctly.
3. Incorrect Tax Withholding by Employers
If your employer isn’t withholding enough tax from your earnings, it could lead to a lower tax refund—or even a tax bill at the end of the year. For instance, if your employer underwithholds $10 each week, it could amount to $520 annually, significantly affecting your refund. Always verify with your employer if you notice discrepancies in your withholding to avoid surprises. Our team at Twenty Acres Accounting can help you navigate this process.
4. Side Income from Freelancing or Gigs
Freelancing, running a side business, or taking on gig work can mean your income isn’t taxed at the source. When it comes time to lodge your return, you’ll have to pay tax on this additional income, which can reduce your refund. To manage this, set aside 30-40% of any side income for taxes so you aren’t caught off guard. If you’re unsure how to handle side income properly, Twenty Acres Accounting can guide you.
5. Increase in Your Income
Higher income usually means moving into a higher tax bracket, resulting in more tax payable and potentially a lower refund. To manage the impact, make sure you’re maximizing deductions and consider increasing the tax withheld from your paycheck. These strategies can be complicated, so it’s worth consulting Twenty Acres Accounting for optimal outcomes.
6. Government Agency Debts
If you have debts to government agencies, they can claim your tax refund to cover those debts. For example, if you owe $1,700 to the Family Assistance Office, any tax refund you receive may be used to pay that debt. To prevent this, it’s a good idea to clear any outstanding government debts before lodging your return. Our team at Twenty Acres Accounting can help assess your situation and provide guidance.
7. Outstanding ATO Debts
Like other government debts, any amount you owe the ATO can also be deducted from your refund. Even if you’re on a payment plan, the ATO can still use your refund to pay down what you owe. If possible, settle any debts in full before lodging to maximize your refund. We can work with you at Twenty Acres Accounting to strategize the best approach.
8. Simple Errors in Your Tax Return
Simple mistakes—such as forgetting to include interest income or other earnings—can affect your refund. For example, missing $742 of interest income could reduce your refund by $267. The easiest step is to double-check all income sources before lodging your return, and if in doubt, let the experts at Twenty Acres Accounting help you. We’re here to ensure accuracy and avoid common mistakes, and its better than the ATO making changes for you!
What to Do if Your Tax Refund Is Lower Than Expected
If your tax refund doesn’t match your expectations, start by reviewing your return for any discrepancies. If something doesn’t add up, it’s best to consult a tax professional for a second opinion. Twenty Acres Accounting is here to help! We can review your return, identify any errors, and guide you on how to file an amendment, ensuring you receive the correct refund.
How to Increase Your Tax Refund
There are multiple ways to boost your tax refund. Here are some steps you can take:
- Claim All Eligible Deductions: Keep accurate records of expenses to claim all available deductions.
- Avoid Double-Claiming the Tax-Free Threshold: Ensure you’re only claiming it from one job.
- Ensure Correct Withholding: Check with your employer to verify proper tax withholding.
- Plan for Side Income: Set aside enough money from any untaxed income.
- Keep Track of All Income: Be thorough when declaring income to avoid penalties.
Managing these tasks can be overwhelming, especially when juggling a busy job or running a business. Many taxpayers overlook deductions such as home office expenses, superannuation contributions, education costs, or financial advice fees—all of which could boost your refund.
To help maximize your tax refund, consider working with Twenty Acres Accounting. Our knowledgeable team will guide you through the process, help you claim all eligible deductions, and ensure your records are accurate.