With the expiration of the Low to Middle Income Tax Offset, plus a series of new crackdowns announced by the ATO, some Aussies are set to get less back in their tax return this year.
Will my tax return be less in 2023?
The Low to Middle Income Tax Offset, which expired on June 30, 2022, previously saw Aussies who earned up to $126,000 per year receive an offset in their tax return, as shown below. But with the offset no longer available, taxpayers who once received it could now be seeing their tax refunds cut by up to $1500.
How the LMITO worked:
Taxable income of $37,000 or less: $675 offset
Taxable income of $37,001 to $48,000: $675 offset plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500
Taxable income of $48,001 to $90,000: $1,500 offset
Taxable income of $90,001 to $126,000: $1,500 offset minus 3 cents for every dollar above $90,000
Founder of financial advice app Otivo, Paul Feeney said that “ultimately, more people will find they have less tax returns resulting from the offsets and so forth that the government had in place”.
How to get as much tax back as possible:
Mr Feeney advised that while there are “many things that people can deduct, there’s a fine line between what you can and can’t”.
He recommended using the ATO’s Deductions You Can Claim web page, to be sure that what you are deducting is acceptable, from education related to your job, to the cost of your tax agent.
What will the ATO be looking for in my tax return?
Accountant Coco Hou said work related expense claims, rental property deductions and cryptocurrency transactions are the ATO’s focus this year.
“(The ATO) are particularly focused on excessive or unsubstantiated claims, such as personal expenses disguised as work related expenses. And so it is very, very important for taxpayers to keep accurate records and only claim the legitimate expenses directly related to their employment.”
Ms Hou pointed out that with the 2022 floods in parts of Australia, things can “get tricky” with rental property deductions.
“A lot of taxpayers need to repair their rental properties … (But the ATO) are targeting the areas of excessive interest deductions, and incorrect apportionment of expenses, especially the repair and maintenance expenses.
“So say for example, if the roof got blown away, you put the roof back on and it could be the deductible but if you say, ‘hey, I want to change a whole new roof’, that’s not deductible, you have to capitalise it and claim depreciation over it.”
The accountant adds that for the third area of focus, cryptocurrency, taxpayers should be very “careful”.
“When it comes to buying, selling and exchanging a cryptocurrency, the capital gain and loss need to be tracked properly.”
What about the HECS/HELP debt indexation?
With the increased HECS/HELP debt indexing having come into effect on 1 June, 2023, many Aussies with student debt have been considering making voluntary repayments to pay off their debt quicker.
While Ms Hou recommended paying down your debt “as early as possible” if cash flow allows, financial advisor Mr Feeney said he believes “it’s a lot to start paying off (HECS debt) quickly.”
“Some people who have got the cash and don’t need it for other goals, they should look at paying that down.
“But my general advice … is to continue to pay it back through pre-tax dollars through the government. Because otherwise, you’re paying it off with post-tax dollars.
“And I’ve no doubt with the financial living costs and the pressures that people have right now, keeping that money for themselves as a buffer instead of paying the HECS is probably a better thing to do.”
How do Australians spend their tax refunds?
Ms Hou said she “can definitely see the state of conservatism already come into the picture,” as even those taxpayers with cash on hand are spending less.
“Simply because they still worry that the interest rates might still go up. And they always prioritise their mortgage repayment, and things like a school tuition fee.
“They’ve cut down their overseas travelling budget … it’s gonna take some time for the public confidence to be restored.”
Best thing to do with your tax return in 2023
Mr Feeney urges taxpayers to be “proactive” and get their tax returns in early, so you can have “money back in your pocket quickly”
“Once you do that … look at if you have any expensive debt, like credit cards and loans that are the 10 to 20 per cent interest rate. Try to pay them off or pay them down.
“And build up that safety buffer … If you’re someone with a mortgage, try and put that money into your offset account, because that’s going to really decrease the interest that people are going to experience.’