Why is my tax refund so low in 2023?
Tax time is here!
Before you get too excited about getting a HUGE refund this year to pay for your holiday, your car rego, pay off your credit cards etc, let’s talk about the elephant in the room.
Your refund will most likely be lower in 2023 than in prior years.
Generally, if your employer taxes you correctly using the ATO tax tables, you won’t get a refund or have to pay tax if you have no other income and no deductions.
Back in the day, (before 2019),taxpayers getting refunds would claim some deductions and may have been eligible for a “Low Income Tax Offset”. The offset is something that the ATO automatically calculates based on your taxable income.
In 2019, the “Low and Middle Income Earner Tax Offset” was introduced by the government, to extend the offset to a maximum of $1,500 by 2022. The refunds of most taxpayers increased as more people were eligible for the offset. In fact, the threshold was a generous $126,000 in taxable income, and it was estimated that more than 10 million taxpayers were eligible to receive the additional offset amount.
Unfortunately, the additional offset was a temporary measure only, and ended on 30 June 2022.
In 2023, the number one reason why your refund is less is due to the discontinuation of the “Low and Middle Income Earner Tax Offset”.
The basic “Low Income Tax Offset” of $700 is still available to those taxpayers earning less that $45,000 and is $325 if you earn less than $66,667.
If your taxable income is above $66,667 there are no more offsets available.
Other reasons your refund may be lower than you expect include:
the working from home (WFH) fixed rate per hour has reduced from $0.80 per hour to $0.67 per hour
you have earnt additional income, which is not taxed until you lodge your tax return. With the increase in interest rates, if you have any money in the bank, you will have earnt bank interest (probably for the first time in many years!). The ATO already knows about your interest and it is pre-filled in your tax return. You will need to pay tax on theses amounts. Dabbling in crypto may also lead to gains that are taxable income.
if you are one of the many taxpayers that are working more than one job, or doing overtime, it is tricky to make sure you are paying enough tax. Your taxable income may increase enough to go up to another tax rate level, which means that all of your income is now taxed at the higher rate. You might end up paying tax. The best way to avoid a bill is to ask your employer (s) to take a little bit extra tax out of your pay per pay period, and make sure that you only tick the box for one employer to claim the tax free threshhold for you.
if you got a pay rise or a bonus during the year, as per the above scenario, you might not have paid enough tax during the year as your income might go up to another tax level
if you have private health insurance, the fund will ask you how much rebate you want to claim. The rebate reduces your health fund premiums, so it is tempting to claim the full rebate. However, if you get the rebate amount wrong, for the level of your taxable income, the ATO will take back any excess you have claimed and you might get a tax bill.
HECS debts - in 2023, the indexation amount applied to outstanding HECS liabilities increased from 3.9% in 2022 to 7.1% in 2023. If you earn above $48,361 in 2023, you will start repaying HECS debts. If you have been repaying HECS debts in past tax returns, you will notice that the repayment for 2023 is dramatically different to 2022 - the repayment rates are based upon the almost double indexation rate, which in turn is an almost double repayment amount. You might then have a tax bill.
medicare levy surcharge - if you don’t have private health cover, and your income is above $90,000 (for a single person) you will be paying an additional medicare amount called a “Medicare Levy Surcharge” and is 1-1.5% of your total income. If you have any additional income, such as pay rises, bonuses, interest etc, you may creep over the threshold and will be automatically charged the surcharge amount (as well as the normal medicare levy of 2%). The best thing to do, is to do the maths - is the surcharge cheaper than a basic hospital policy?
don’t believe the media hype around tax time - not all of your Bunnings or Officeworks purchases will be deductible. It entirely depends on your occupation and your use of the items purchased. Another thing to note is that the amount you claim for a purchase will reduce your taxable income so you will have a lower tax amount charged. You don’t get 100% back as it will depend on your tax bracket tax %!
