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Why is my ATO refund less than last year?

Here are some of the instances that may cause your ATO refund to be lower than the previous year:

    It is common for a taxpayer to receive a pay increase from year-to-year. Sometimes this can result in your income levels going over the threshold where you are required to pay back your HELP/HECS or Trade Support loans to the government (assuming you have an existing loan in the first place). To confirm the current tax and loan repayment thresholds, refer to Rates & Thresholds.

    If you had previously notified your employer that you had a debt prior to going over the repayment threshold, everything should work out ok as the payroll software by default with calculate this increased obligation automatically.

    The issue arises typically when you haven’t notified your employer when you started (or they have made a mistake and not updated their records) and as a result they have not been able to allow for this.

    The end result will be that you have a tax liability when filing your tax return and this is likely to be unexpected. In this circumstance, you have most likely been paid too much from the date your went over the threshold (i.e. you were paid the loan portion directly when it was meant to be paid to the ATO each pay period).

    The only solution in this instance is to notify your employer/payroll department to have it rectified. Keep in mind that this can only be rectified moving forward so if we are partially through a financial year already, it will likely still be an issue up until the date it was corrected.

    This event in itself should not cause any immediate impact on your refund as the tax tables should adjust accordingly to automatically withhold more tax to allow for the increase.

    The issue in this event is when your increased wage or salary causes a direct issue by pushing you over a threshold that you have not allowed for (such as HECS/HELP, Medicare Levy Surcharge) or reduces previous entitlement, offset or reductions (medicare levy, low-income offsets, senior offsets, etc).

    An issue will arise in the below circumstances:

    • Not claiming the tax-free threshold with the right employer
    • Not claiming the tax-free threshold with any employer in the previous year but making an adjustment in the current year

    When going from one employer to another, there should be no real impact on your tax return as you have stopped one income stream and moved to another (similar to what would have been the case if you stayed with the first employer. In both instances, claiming the tax free threshold for both would be the correct option.

    The issue general arises when you work more than one employer at a time (multiple jobs) and not claiming the ‘tax free threshold’ correctly. The solution is to only claim the ‘tax free threshold’ with the highest paying employer and not claim this for any of the other. Aside from this, there is not too much more in your control unless you request addition amounts of tax to be taken out manually (in addition to the required amounts).

    You may have gone over the Medicare Levy Surcharge either as a single or couple and not had the applicable Private Health Insurance (hospital cover), either in part or for the whole year. If this is the case, the ATO will penalise you for not having the appropriate cover by charging you as additional surcharge on your return (which your employer would not have allowed for). To avoid this, you will need to seek the applicable cover.

    You may have gone over the Medicare Levy Surcharge either as a single or couple and not had the applicable Private Health Insurance (hospital cover), either in part or for the whole year. If this is the case, the ATO will penalise you for not having the appropriate cover by charging you as additional surcharge on your return (which your employer would not have allowed for). To avoid this, you will need to seek the applicable cover.

    There may have been additional assessable income this year that was not a factor in the previous year. For instance, you invested a lump some of money that earned additional income. Interest income does not by itself have any tax withheld (unless you don’t report your Tax File Number to your financial institution). As a result, earning interest will increase your tax liability/reduce your refundable amount.

    • Working from home less often
    • Not using your motor vehicle as much
    • Not as much work-related travel (flights, meals, accommodation, etc.)
    • Spending less on work-related expenses
      • i.e. not investing as much in equipment
    • Depreciating assets claims reducing each year
    • No longer renewing memberships (union, registrations, etc.)
    • Received a work vehicle in the current year (reducing your claim from the previous year)
    • Received a work phone in the current year (reducing your claim from the previous year)

    You may have made larger donation in a previous year that were not replicated again, i.e. once off charity donations or gifts, funds were not readily available or you cancelled a previous charily subscription.

    Each year, the treasure announce upcoming tax changes that are included as part of the federal budget (typically the second Tuesday in May). As a result, there will most likely be tax changes to offsets or concessions that will impact a vast array of taxpayers. With this in mind, a concession that you received last year may no longer be available anymore as a result of the expiration date being met or legislation changes.

    Centrelink has a connection directly with the ATO. Upon the lodgement of your return, information is reported directly to Centrelink for their reconciliations and assessment of your entitlements or obligations. If you owe any money to Centrelink at the time your tax return is processed, this will automatically get deducted out of your return. A tax agent will have no knowledge of these obligations and will be out of their control. The most common adjustment are for:

    • Family Tax Benefit; and
    • Child support/family services.

    When you have a spouses income declared on your tax return, you will be assessed as a ‘couple’ for certain calculations and not a ‘single’. Often it will not cause an issue to your return but there are a number of circumstances where it will.

    • The combined income may push you over the Medicare Levy Surcharge threshold under the ‘couple’ threshold, where you were previously under as a ‘single’. This typically occurs when your spouse is a high income earner. To avoid this, you just need to ensure you both have the appropriate level of Private Health Insurance (Hospital Cover).
    • If you were previously a single with a dependent child, you may have been receiving a medicare levy reduction or low income offset however a spouses income has disallowed these entitlements.
    • If you were previously classed a low income earner, you may have revived offset in the previous year that you are no longer entitled to.

    This only applies where you had a rental property obviously. By default, your negative gearing loss on a rental property can often naturally decrease. This typically arises as follows:

    • Where you have a principal and interest loan, the balance would typically be less than the year before (as a result of the repayments) and thus your interest expense would be less (on the assumption interest rates have not gone up over and above this difference)
    • If you have depreciating assets on your rental property (capital allowances) this will naturally decrease each year if you are using the diminishing value method, which claims higher amounts of the decline in value in the earlier years of the assets life.

    Other possible impacts:

    • Repairs and maintenance may be less than the previous year
    • Rental income may be higher (either through a rent increase or the property was rented for a longer period the the previous year)

    You may have sold a capital asset/investment in the current year (that triggered a CGT event) that you did not do in the previous year or it was of a higher value. This may include shares, managed funds, investment properties, etc.

    When you receive a capital gain, there is generally no tax withheld by default in this transaction, so it is up to the tax payer to put the funds aside on their own and pay this to the ATO when the return is completed later in the year.

    Many people often assume that their refunds will be the same from year to year but as you can see from above, many variables can impact your ATO refund. Often your circumstances are not even comparable with the previous year, but even in circumstances when you feel things are ‘similar’, this will not in itself guarantee a comparable result.

    If any of the above variables are a factor, this may be the cause of the refund discrepancy. If none of the above applies and your refund is still substantially different, compare both tax returns side by side and see if anything obvious stand outs. If this is still not successful, check with a tax professional – Befinancial – Acounting & Business Solutions are specialists in Individual and small business tax and advisory and come highly recommended.