Why your tax refund might be less in 2023

Over the past few months, we have engaged in conversations with our clients to explore the reasons behind potential reductions in their tax refunds this year. Additionally, I’ve had the privilege of being interviewed for numerous news articles and stories on this very topic, with even TikTok buzzing about it. Discover Tax Saving in NSW! In light of this, we decided to compile all the essential information into one comprehensive blog post, which we can now share with our valued clients and associates.

We encourage you to take a moment to read this blog post carefully to gain insights into why your refund (if applicable) might be lower this year. Your understanding of these factors is vital, and we aim to keep you well-informed.

In recent years, individuals with low to middle incomes have experienced larger-than-usual tax refunds, primarily attributed to the implementation of the “Low and Middle Income Earner Tax Offset.” This offset was structured as follows:

Unfortunately, the Low and Middle Income Earner Tax Offset came to an end during the last financial year. Initially introduced in the 2019 financial year, it was extended due to the impact of Covid. Moreover, for the 2021–22 income year, it was further augmented by an additional $420 as a one-off cost of living tax offset, providing an extra boost to the tax refunds of many individuals during that period.

This financial year in NSW saw a reduction in the working-from-home fixed rate method from 80c to 67c per hour, which could affect your tax saving. If you were or are claiming this method, it will have an impact on your refund this year, as it will be reduced accordingly.

How tax works

Contrary to the common understanding of taxes, if your salary or wage income is correctly taxed throughout the year in NSW, and you have no additional income or deductions, you generally shouldn’t owe any tax or expect a refund.

For individuals earning a lower income in NSW, specifically under $45,000, there’s a possibility of a small refund due to the low-income tax offset, which can amount to up to $700. Moreover, if your taxable income falls below the tax threshold of $18,200, you would typically receive a full tax refund.

Unfortunately, influenced by media representations, many people in NSW now expect an automatic tax refund and potential tax savings when they file their tax returns, even when it might not be the case based on their financial circumstances.

There are many other factors that come into play as to whether you get a tax refund as follows:

The average person’s tax rate is approximately 20-30% in NSW. This implies that for every dollar you spend at places like Officeworks to claim a tax deduction, you will only receive around 20-30 cents back as potential tax savings. It’s important to note that this deduction may not necessarily result in an actual refund; instead, it could potentially reduce the amount of tax you need to pay.

– Government loans for study or training support must be repaid once your income reaches the threshold of $48,361 for the 2023 financial year. We advise verifying with your employer whether you have correctly indicated your intention to repay these loans by checking the appropriate box on your Tax File Number (TFN) declaration form. Rates here for tax-saving opportunities in NSW.

– For single individuals earning over $90K without private health hospital insurance, the Medicare Levy Surcharge applies, which can amount to 1-1.5% of their income (please note this is separate from the standard Medicare levy that everyone pays, which is 2% of taxable income). You can find additional information here regarding family income, etc. If you choose to lodge your own tax return early (prior to 31 July), it’s essential to double-check whether your private health hospital cover has been pre-filled correctly. Failing to do so might lead to inadvertently paying the Medicare Levy Surcharge in error and missing tax-saving opportunities in NSW.

– If you are a single individual earning over $90,000 and have private health hospital insurance in NSW, but you mistakenly claimed the wrong rebate tier for your taxable income on your insurance policy, you might be required to make an additional payment. To rectify this situation for the 2024 financial year and maximize tax savings in NSW, we suggest contacting your private health hospital insurer and updating the correct rebate tier information. Taking this step will ensure that your insurance coverage aligns appropriately with your income, preventing any potential overpayments or complications. More info here.

– Receiving bonuses or pay raises throughout the year in NSW can impact your overall tax position and tax saving. The tax tables calculate your tax for each pay cycle based on the assumption of a consistent pay amount. Thus, any fluctuations in your income due to bonuses or raises can lead to adjustments in your tax calculations, potentially affecting the amount of tax you owe or the refund you receive.

– In addition to your regular income in NSW, any additional earnings, such as interest, dividends, cryptocurrency profits, or sole trader income, are also subject to taxation and tax saving. If you haven’t paid taxes on these additional income sources throughout the year, you may encounter a tax bill during tax time. To avoid any unexpected financial burdens, we advise seeking guidance from an accountant as soon as you start earning this supplementary income. By doing so, you can plan ahead and set aside the necessary funds for tax obligations, ensuring a smooth tax filing process.

– If you hold more than one job in NSW, it’s essential to remember that you can only claim the tax-free threshold once. To avoid any complications and for tax savings, we recommend verifying with each of your employers that you have not selected the tax-free threshold option with more than one employer on your Tax File Number (TFN) declaration form. Double-checking this information will help prevent any potential tax-related issues and ensure proper compliance with taxation rules.

At Acebiz, we specialize in providing tailored tax-saving solutions for residents of NSW to help lower their tax refunds in 2023. Our team of skilled tax professionals understands the unique tax landscape in NSW and is dedicated to maximizing your potential deductions, credits, and rebates. By leveraging our in-depth knowledge of local tax laws and regulations, we can help you identify eligible tax-saving opportunities and develop personalized strategies to minimize your taxable income. Whether you’re an individual, a business owner, or an investor, we strive to optimize your tax position, ensuring you keep more of your hard-earned money while remaining fully compliant with tax requirements. Let Acebiz be your trusted partner in achieving substantial tax savings and securing a more financially stable future in NSW.

For any inquiries, please don’t hesitate to reach out to us at 02 9686 6333 or via email at admin@acebiz.com.au We are here to assist you with any questions or concerns you may have.