Why is my tax return so low?
Febb Borje, a tax professional with 11 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.
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Table of Contents
Why is my Australian tax return so low?
Tax refunds are very common in Australia, just like in the US. The concept is pretty similar in both countries. If you qualify for credits or deductions, you’ll typically get a refund after filing your tax return.
There are many reasons why your tax return may be lower than expected. You may have also missed some recent policy changes introduced by the Australian Taxation Office (ATO), so we’ve listed a few to look out for and what you can do about them.
1. Removal of the Low and Middle Income Tax Offset (LMITO)
The ATO previously discontinued the Low and Middle Income Tax Offset (LMITO) in 2023, which provided up to AUD $1,500 in tax relief for certain individuals.
The LMITO did boost tax refunds for a lot of low- and middle-income earners, but it was a temporary measure that the ATO had set to begin with. That may be the reason why a huge portion of your refund was lost.
This is what you can do:
Since the LMITO has been discontinued, you can’t directly benefit from it anymore, but you can still manage your tax refund by:
- Claiming all eligible deductions: Track all expenses directly related to your income and keep records.
- Claiming foreign income tax offset: If you’ve already paid tax to the US on the same income you reported to the ATO (this also prevents double taxation).
2. Your income increased
If you got a raise, a second job, or maybe both, then congratulations! Your income increased, but so did your taxes, resulting in a smaller refund.
When you earn more, you might find yourself in a higher tax bracket, which means you’ll be paying a bit more in taxes. Plus, that extra income from gigs like Uber or Fiverr will also contribute to your tax obligations, so it’s good to keep that in mind.
This is what you can do:
To avoid any more surprises, you can:
- Set aside 30-40% of your side income for tax: A good accountant can help you stay on track.
- Update your withholding: You can ask your employer for this to help keep your tax payments accurate throughout the year.
If you have a second job, you might also have:
2.1 Claimed the tax-free threshold for two or more jobs
The tax-free threshold in Australia (AUD$18,200) should only be claimed on one job. This reduces the amount of tax withheld from your income, which makes your tax refund larger.
However, claiming it on multiple jobs means your employers withhold less tax than they should. As a result, not enough tax may be taken out of your pay. This can leave you with a tax bill at the end of the year.
📌 Tip: You can claim the tax-free threshold only on your primary job to prevent confusion and ultimately, owing tax.
Our tax specialists can help with your US tax obligations in Australia.
3. You have existing government debt
You may owe money not just to the ATO but also to other government agencies, such as Centrelink. Existing government debts are automatically paid out of your tax return money, with the remaining amount forming your tax refund.
In short, the ATO and other government agencies get the first shot at your refund to pay off your debt.
This is what you can do:
- Settle your debts: You can check your debts early on and settle them on your myGov account.
- Set up a payment plan: If you can’t pay the full amount, contact the ATO or the appropriate government agency to arrange a payment plan so that they won’t take it out of your refund.
💡 Important! Save your receipts or confirmations for any payments you’ve made toward your debt. Just in case you need to dispute a deduction later.
In Summary
These common reasons can go under your radar easily without proper planning. So, it’s good practice to not expect your refund to be the same each year. In fact, small changes in your income or circumstances can alter your tax obligations drastically.
Additionally, there will always be tax updates and changes happening with the tax withholding standard and it’s more challenging given that you have two tax systems to look out for (US and Australia).
FAQ'S
I did gig work (Uber, Airbnb, etc.). Why did that affect my refund?
Side income is taxable in Australia. If no tax was withheld from that income, it increases your overall taxable income, which can reduce or eliminate your refund.
What if my employer didn’t withhold enough tax?
Can I still boost my refund?
How long does it take to get my refund?
How can I verify if my low tax refund is accurate?
How can I amend my tax return in Australia?
