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Why Has My Tax Refund Gone Down?

We consult with hundreds of clients every year who want to lodge their tax returns. A lot of
them have one common question, especially the new clients who come to us. Their common
question is, “why is my tax refund going down?”

Now, this is a question that has no single definitive answer. There are numerous reasons that
can lead to a drop in your tax refund. So, in this blog, we will take a look at some primary
reasons that could potentially reduce your tax refunds.
Let’s begin.

8 reasons why has your tax refund gone down

The Low-Middle Income Tax Offset (LMITO) is Gone

ATO introduced LMITO, which boosted the tax refunds for low-to-average income earners.
However, the LMITO was applicable between 2019 and 2023. So now, with LMITO gone,
the taxpayers are dealing with lower tax refunds. In many cases, this drop in tax refunds is up
to a hefty $1,000! So, if you are experiencing a crunch in your tax refunds, this could be one
reason. Now, the only option you have is to claim all eligible tax deductions and maintain
proof of your expenses.

Double-Claiming the Tax-Free Threshold

A lot of employees ignore the fact that you can claim a tax-free threshold from one job. If
you have recently changed your job and claimed the tax-free threshold from both jobs, the old
and the new one, your tax refund will go down automatically. This can lead to a lower refund.
The best way? Take the tax-free threshold from the job where you earn the most.

Employer Issues Affecting Tax Withholding

Tax withholding from your employer is another major reason that can affect the tax
withholding! Yes, if your employer is not withholding enough tax from your pay, you might
end up losing your tax refund. Let’s say your employer is withholding $10 less ever week, it
would sum-up to $520 a year! Now, imagine the drop in your tax refund due to this issue! So,
make sure you ask your employer to adjust your tax withholding if you notice discrepancies.

Freelance, Sole Trader, or Side-Gigs Income

If you are a sole trader, freelancer, or do side gigs to earn money, your income won’t be taxed
at the source. So when you lodge your income tax return, you will have to pay tax on the
above-mentioned income. So you should not expect too much of a refund in this case. The
best way? Keep aside 30 to 40% of your side income to pay this tax. Benefit? You won’t be
caught off-guard while paying the income tax and won’t have to scrounge money for tax.

Increase in Your Income

Now, this is a no-brainer. As your income increases, so does your tax rate. Reason? The more
income you get, the more you will move into a higher tax bracket. So obviously you will
have to pay more tax. So, is there no way to mitigate such higher taxes? Well, there are ways
to do so. You’ll have to make sure you are grabbing all the deductions and even ask your
employer to withhold more tax from your pay. But these are complex strategies, and it’s
advisable to consult an expert like Nanak Accountants & Associates to get optimum benefit.

Existing Government Agency Debts

This is another factor that a lot of Aussies aren’t aware of. Remember, if you owe money to
any government agency, it can claim your tax refund to cover those debts. Let’s say you have
a debt of $1,700 with the Family Assistance Office. So, when you lodge your return and
receive a tax refund, the Family Assistance Office has the right to claim your refund. So
make sure you pay off any outstanding debts to such government agencies if you do not want
your tax refund to drop.

Existing ATO Debts

Similar to other government debts, any outstanding amount you owe the ATO will be
deducted from your refund. Even if you have a payment arrangement, the ATO will still use
your refund to pay down your debt. So, the better option? Clear all your debts to get full
refunds.

Simple Tax Return Mistakes

Apart from the above-mentioned reasons, sometimes silly mistakes could lead to a drop in tax
refunds. For e.g., forgetting to include income like bank interest or additional earnings can
change your refund amount. Let’s say you forget $742 in bank interest. Result? Your tax
refund could drop by $267. So, make sure you double-check all income sources to avoid such
mistakes. Even better, consult with the experts like the ones at Nanak Accountants & Associates.
They will ensure you don’t make such simple mistakes while lodging your income tax return
and get the maximum rebate.

What to Do if Your Tax Refund is Lower Than Expected?

If your tax refund is less than you expected, the first step is to review your tax return
thoroughly to see if it matches your records. If there are discrepancies, take action
immediately.

The best way to address this is by consulting with a tax professional, like the experts at
Nanak Accountants & Associates. If you completed your tax return independently using an online service
or through another tax agent, consider getting a second opinion. Nanak Accountants & Associates offers a free assessment service, where we will review your return and provide advice on how to
correct any issues. Existing clients can visit our office or call us for immediate assistance and
advice.

We aim to help you achieve the most accurate result possible. If there are errors or missed
deductions on your return, we will help you file an amendment to ensure you receive the
correct refund.

How to Increase Your Tax Refund?

Overall, there is no single reason that can cause a drop in your tax refunds. There are plenty!
So, if you want to maximise your tax refunds, you should:

• Claim all eligible deductions and keep proof.
• Avoid double-claiming the tax-free threshold.
• Ensure correct tax withholding with your employer.
• Set aside tax from side income.
• Keep track of all income and deductions.

We know all this can be a headache, especially when you are busy with your own job or
business. Many taxpayers miss out on deductions like home office expenses, superannuation
contributions, education costs, and fees for financial advice. All these have the potential to
increase your tax refunds.

So, to ensure you claim all eligible deductions, work with a knowledgeable professional like
Nanak Accountants & Associates. They can guide you through the process and help you maintain
the necessary records.

For any further information, feel free to talk to our experts.