Explainer: Why your tax return is lower (or non-existent) this year

I don’t know if it’s been my feed or everyone, but people everywhere are voicing their frustration with the Australian Tax Office and their lower-than-expected tax return for the 2022-23 financial year. Some people have voiced even more anger at actually being issued with a debt to the ATO. Here is a bit of an explainer that might help you understand your tax return this year:

*This is not financial advice. 

THE BASICS 

Let’s start with the basics of a tax return, just as a refresher for those who have lodged before, or an information session for those who are completing their first, because you don’t learn that shit in school. 

To claim your (hopeful) tax refund you will need to first lodge your tax return, with there being three options to do this. 

• myTax - through this method you will prepare your own tax return using your myGov account. 

• Using a registered tax agent - these are agents like H&R Block who are professional tax agents and can do most of the return process for you. You will need to pay for this service (some can take it straight out of your return) but accounting fees can be claimed in your tax return next year. 

• Paper return - You are able to prepare and lodge your return on paper and mail it to the ATO, keep in mind that these returns typically take longer to be refunded. 

TIMING

You can only put off the effort of dealing with your tax return until the end of October. By the 31st of October, you need to have lodged your return if you are doing it yourself or engaging the help of a registered tax agent. They do generally have special lodgement schedules but you need to have started the process by that October 31 deadline. 

The ATO recommends that you don’t get too excited and lodge your return in the first couple of weeks in July though. You can technically lodge from the 1st of July but those lodged first are more likely to be missing some important information and cause you more hassles later on. 

SO.. WHY IS MY REFUND SO BLOODY LOW?

There are a couple of reasons your tax refund is looking a little smaller than it has in previous years. 

Firstly, your refund could have been offset against other debt that you have. The law requires that the ATO use any credits or refunds that you become entitled to, to pay off an existing debt you have with them. If they have done this you’ll be able to a transaction with the description “offset” on your ATO statement of account. 

Next, perhaps there was a difference between the details in your tax return and your pre-fill information data. This pre-fill information automatically loads certain data to your tax return to make the process a little easier for you. This includes data the ATO receives from third parties like health funds, financial institutions, employers and government agencies. If you change the pre-filled data, or you complete information that later comes in from a third party differently from what you entered the ATO may contact you to discuss, or they’ll just amend the return if they have high confidence in the data from the third party. 

It may be that your income and deductions are simply different from last year. If you’re working different hours, have changed jobs or are claiming fewer deductions, this is obviously going to lower your tax refund. 

But there is a more likely reason your refund is looking a little low (or non-existent): the low and middle-income income tax offset (LMITO) is no longer. 

Not sure what LMITO was? Allow me to explain.

LMITO was introduced in the 2018-19 budget and allowed people earning between $37,000 and $126,000 a tax benefit of up to $1,080. In the 2021-22 financial year, this was changed to those earning between $48,001 and $90,000 and gave them all the complete $1,500 offset. In this year over 10 million people claimed LMITO.

BUT, LMITO ended on the 30th of June 2022. Meaning if you’re about $1500 short this year, that would explain why. 

DEDUCTIONS

You can claim up to $300 of work expenses without having to show records, but for anything over that you’ll need to provide receipts. 

Some things you can claim:

• Work-related travel expenses;

• Work-from-home expenses can be claimed with the fixed rate method or the actual cost method;

• There are some tools, computers and other items you use for work that aren’t included in the work-from-home fixed rate method, but you’ll have to be careful figuring that out. 

• Any education, training and seminars you’ve undertaken for work, including a first aid course. 

• Union fees, professional memberships, agency fees and working with children checks can all be listed as deductions. 

• Perhaps one of the strictest categories is meals entertainment and functions, it mostly relates to any meals that you have purchased while working overtime. 

• Another strict category is personal grooming, health and fitness. It covers any compulsory medical assessments and if you’ve had to pay for COVID-19 tests for work purposes. 

• Donations can be deductible if the organisation you give to has the status of “deductible gift recipient.” Social media fundraisers and crowdfunding are included in this category. You do need a record of the donation. 

• Some investment fees can be claimed. 

• If you’ve made a personal super contribution you may also be able to claim a deduction. 

• If you got a tax agent to do your tax return last year and had to pay a fee, now is the time to claim that. 

The tax return process can take anywhere from two weeks to a month and a half once you have lodged or had your return lodged for you. This length of time can be dictated by the method that you lodged your return.