Your Guide to Individual Tax Refunds in 2024 Australia

As we move through the 2024 tax season, many Australians are eager to lodge their tax returns and hope to receive a refund. We have brought together some of the most common questions we get asked when it comes to Individual Tax Returns.

A tax refund is the return of excess taxes paid by an individual or a business to the government within a given tax year. A tax refund represents the difference between the total tax you paid during the year and your actual tax liability. It acts as a repayment by the ATO for any overpaid taxes.

How a Tax Refund is Calculated

1. Income and Tax Withholding: Throughout the year, taxes are deducted from your pay by your employer and remitted to the Australian Taxation Office (ATO). These are known as withholding taxes.

2. Lodging a Tax Return: At the end of the financial year, you lodge a tax return reporting your total income, deductions, and credits. This is used to determine your actual tax liability.

3. Tax Liability: Your tax liability is the amount of tax you owe based on your taxable income and applicable tax rates.

4. Comparison: The ATO compares the total tax you have paid throughout the year (including withholding and any other prepayments (aka tax instalments)) with your actual tax liability.

5. Excess Payment: If the total amount of tax paid exceeds your actual tax liability, the excess amount is refunded to you. This excess is your tax refund.

6. Refundable Amounts: Your refund is directly related to how much tax you have paid through the year, paid too much, you'll get some back, paid not enough and you'll owe the ATO. This is why it can be difficult to compare refunds and tax results with others.

Factors Influencing Tax Refunds

• Income Levels: Higher income might lead to higher withholding, which could result in a larger refund if deductions and credits are significant.

• Tax Deductions and Credits: Claiming allowable deductions (like work-related expenses) and credits reduces your taxable income and liability, potentially increasing your refund.

• Tax Payments: Prepaid taxes, such as PAYG instalments or additional tax payments, can also affect the refund amount.

Standard Processing Time for Tax Refunds

The Australian Taxation Office (ATO) typically processes most tax returns within 12 business days if lodged electronically. However, if you lodge a paper return (who even does that anymore?), it can take up to 10 weeks. Factors that can delay your refund include:

• Incorrect or incomplete information

• Outstanding debts with the ATO or other government agencies, including Centrelink

• Random audits or reviews by the ATO

Hints and Tips on Keeping Receipts

Keeping accurate records is crucial for maximising your tax refund and ensuring compliance. Here are some tips:

• Use Apps: Utilise apps like ATO’s myDeductions or DEXT to keep track of your receipts and expenses.

• Organise Receipts: Store receipts in categories such as work-related expenses and donations. But please, no shoeboxes!!

• Digital Copies: Keep digital copies of receipts to ensure they don’t fade or get lost.

• Record Details: Note down the purpose of each expense to make it easier when you lodge your return and you don't need to rely on your memory.

Common Misconceptions on What Can and Can’t Be Claimed

There are many myths about what expenses can be claimed. Here are a few common misconceptions:

• Clothing: Only specific work-related clothing, such as uniforms or protective gear, can be claimed, not everyday clothing.

• Home Office Expenses: Only the work-related portion of home office expenses can be claimed, not the entire amount.

• Travel Expenses: Travel between home and work generally cannot be claimed unless you carry bulky tools or equipment.

• Meal Expenses: Meals cannot be claimed unless you are traveling for work and staying overnight.

• Medical Expenses: Many people believe they can still claim medical expenses on their tax return. However, this deduction was phased out after the 2018-2019 tax year.

The Dangers of Comparing Your Tax Return to Others

It’s can be tempting to compare your tax return with others, but this can be misleading. Here’s why:

• Different Circumstances: Your mate down at the pub may have different circumstances, such as different income levels, deductions, or dependents.

• Personalised Deductions: Tax returns are highly personalised. What one person can claim might not apply to another.

• Fluctuating Refunds: Refunds can vary year to year based on changes in income, deductions, and tax rates.

Reasons for Lower Refunds or No Refund at All

If your refund is lower than expected or you’re not getting a refund, consider these factors:

• Higher Income: A higher income can push you into a higher tax bracket, reducing your refund.

• Reduced Deductions: Changes in your deductible expenses can affect your refund.

• Offsets and Rebates: You may not qualify for the same offsets or rebates as previous years.

• Changes in Tax Rates: The 2025 financial year changes in the tax rates implemented from 1st July 2024 may affect your next year's return, if you have moved into a higher tax bracket for example, you may owe more tax and receive a smaller refund.

If you have any questions or need assistance with your tax return, feel free to reach out to us at MJA Business Solutions.