Why is my mates tax refund so much more than mine!?
Our team of Accountants get asked this question on a DAILY basis. And we get it. Sometimes it might seem frustrating to see refund amounts differ on the surface, when you compare yourself to another individual in similar employment to you. We too understand that the COVID-19 crisis has hit family budgets hard, and the thought of a fat tax refund is more tempting than ever. But, the important point to take note of here is that there are many factors that impact eligible tax refunds, and each year things change. What you’re comparing is often not apples to apples. So, it really is best that you trust in your accountant. You’re paying a professional to ensure you’re getting what you’re entitled to, no matter how that compares to your neighbour, brother, sister, cousin, or colleague.
Let’s discuss some of the key things that can impact an Individual Income Tax Return in 2020…
- Maybe you have other sources of taxable income such as bank interest or dividends? These are taxable at your tax rate – and everyone has different amounts of money in the bank!
- Private Health Insurance – this is a big one that many people don’t consider. If you DON’T have it and you exceed the relevant income threshold, you will be paying the ATO a Medicare Levy Surcharge. Simple.
- Work related deductions. Ok, so these deductions will increase your refund, however, you’re still a winner if you haven’t had the cost outlay in the first place! (You only get back an amount equal to your tax rate for every dollar you spend).
- Do you claim a Logbook? Logbook deductions (with appropriate record keeping methods) can be a fantastic way to bring your taxable payments down. If you’re eligible for this method, the percentage claimed will depend on usage. No one claim will be the same.
- If you have a Logbook, you can claim your vehicle. But all vehicles are worth different amounts, which means the amount of depreciation claimed on one vehicle will be different to the next.
- Speaking of vehicle depreciation, you may no longer have much depreciation to claim. If the full amount from the asset you purchased 5 – 6 years ago has been claimed in previous tax returns, you will no longer be able to claim it. You can’t claim depreciation forever (sorry!).
- Do you have an investment property? This could either increase your refund through negative gearing, or reduce your position if you’re making a rental profit.
- Maybe you owe money to the ATO or Centrelink? This will come directly off your refund amount before it hits your bank account (if you were going to receive a refund that is!). Fairs fair.
- HECS/ HELP Debt (Higher Education Loan Program) – If you have one of these debts, and you’ve start earning more, you will need to repay more (which is a good thing, because it will be paid off sooner, oh and a larger wage is great too!)
There are more factors that can come into play on top of the above, but we hope that this information can shed some light on the several reasons why those eligible for refunds this year could get less (or more!) in their pockets than expected.
Importantly, if you pay a great accountant (A.K.A one from our Highview team) you can trust that their expertise is lining your pockets with as much refund money as you’re are entitled to.