How much will you save in tax from 1 July 2010, as a result of tax rate changes?
Tax return time always brings mixed emotions - a bit of dread and excitement. Of course, there’s the thought that a potential refund may give a sign of hope even though it includes tons of paperwork.
But this year’s tax return might not be what you expect.
Last year, the average tax refund was a welcome $2800, giving many of us a nice financial boost. But with the ups and downs of today's economy, this year's returns are proving to be a bit smaller and more unpredictable.
Some of us are even dealing with unexpected bills, especially with the ever-increasing cost of living.
So, what's different this time around, you might ask?
The Low and Middle-Income Tax Offset (LMITO)
One key factor contributing to the smaller tax returns is the reduction of the Low and Middle-Income Tax Offset (LMITO). The LMITO was introduced as a temporary measure to offer relief to taxpayers with lower to middle incomes, counteracting the effects of bracket creep. Essentially, it reduced the amount taxpayers owed to the Australian Taxation Office (ATO) based on their income.
For instance, individuals earning between $37,000 and $90,000 saw a $1500 offset, which effectively lowered their tax liability for the financial year by that amount. However, this year, the LMITO has been cut back, leading to a decrease in potential refunds or even a shift towards owing more in taxes.
Working from Home Claims
Another significant change impacting tax returns is the shift in working arrangements. At the onset of the COVID-19 pandemic, remote work became the norm for many Australians. This prompted the ATO to introduce the simplified $0.80 'shortcut' method, allowing taxpayers to claim various home office expenses, from energy costs to internet bills. It also encompassed the depreciation of furniture, computers, and other equipment required for remote work.
But with the world gradually returning to post-pandemic norms, the ATO adjusted the work-from-home pricing to 0.67 cents per hour for the 2022-2023 financial year. Notably, this change excludes the depreciation of furniture and equipment, potentially reducing the scope of deductions individuals can claim.
Seeing the Silver Lining
While a smaller tax return might initially lead to disappointment, there's a silver lining to consider. According to Associate Professor Ann Kayis-Kumar from the School of Accounting, Auditing, and Taxation at UNSW, receiving a large tax refund isn't necessarily a good thing. It indicates that the ATO has held onto your money throughout the year, rather than it being available for your use.
On the flip side, if your tax bill is higher than expected or you owe money to the ATO, it could indicate that you're earning more than the average Australian. This is a perspective shift that encourages us to look beyond the immediate financial gain and see the bigger picture of our financial health and growth.
What to Keep in Mind
As taxpayers, there are a few crucial considerations to keep in mind to navigate this changing landscape:
Health Insurance Changes: If your income changes, don't forget to update your private health insurance provider. Failing to do so could lead to higher monthly premiums and potential repayments of rebates during tax return lodgment.
Multiple Jobs: If you work multiple jobs and claim the tax-free threshold for both, be cautious. You might face a larger tax bill if the second employer hasn't withheld enough tax, leading to an unwelcome surprise at tax time.
Stay Tax Compliant: Being up-to-date on your taxes is paramount. Falling behind could result in interest charges and penalties that add unnecessary stress to your financial situation.
Thank you for taking the time to read our blog. While we've shared some general insights here, we know that everyone's situation is unique.
If you're looking for tailored advice to make the most of your tax deductions, we're here to help!
Why not give us a call at 02 9411 5422? We'd love to chat with you and make sure you're on the right track to maximizing your tax benefits.
Let's work together to find the best approach for your specific circumstances!