Many Australian taxpayers lodge their income tax return expecting to receive a tax refund. However, the final result can sometimes be different from what they expected. You may expect a refund and receive a tax bill instead, or your expected refund may be lower than anticipated.
This can be particularly confusing for individuals who have worked for two or more employers during the financial year. Having multiple jobs does not automatically mean you will receive a larger tax refund. Your final tax result depends on your total taxable income, the amount of tax withheld during the year, eligible tax deductions, Medicare levy, HELP or other study loan obligations, and other relevant factors.
At D&B Accountants Pty Ltd, we help Australian taxpayers understand their tax position and make sure their tax returns are prepared accurately and supported by appropriate records.
What determines whether you receive a tax refund or have tax payable?
A simple way to understand your tax return is to think of it as a comparison between:
Your total tax liability – tax already withheld or paid = your final tax result
If the amount of tax already paid during the year is greater than your final tax liability, you may receive a tax refund.
If the amount already paid is less than your final tax liability, you may have tax payable.
Your tax deductions can also reduce your taxable income when you are entitled to claim them. However, deductions must meet the relevant requirements and be supported by appropriate records.
The ATO explains that work-related deductions generally need to be directly related to earning your income, paid by you and not reimbursed, and supported by records such as receipts.
Why don’t I receive a tax refund even though I had two jobs?
This is one of the most common misunderstandings about Australian tax returns.
Some taxpayers believe that working two jobs means they have automatically paid more tax and should therefore receive a refund. However, the number of jobs you have does not determine whether you receive a tax refund.
When you work for multiple employers, each employer generally calculates PAYG withholding based on the information you provide and the applicable withholding rules. At the end of the financial year, the ATO considers your income from all relevant sources together when calculating your final tax liability.
For example, imagine an individual works for Employer A and Employer B during the same financial year. Each employer may have withheld PAYG tax from the employee’s wages. However, when both incomes are combined in the tax return, the individual’s total taxable income may result in a higher overall tax liability than expected.
The ATO has also highlighted that people with multiple sources of income can end up with a tax bill because their combined income may move them into a different tax or study loan repayment bracket.
The tax-free threshold can also be important
When an individual has more than one employer, it is important to understand how the tax-free threshold has been claimed.
If the tax-free threshold is claimed incorrectly across multiple jobs, there may not be enough PAYG tax withheld throughout the year. This can contribute to a tax bill when the income tax return is lodged.
Therefore, having two jobs does not automatically mean:
Two jobs = two lots of tax withheld = tax refund
Instead, your final tax result is based on your total income and total tax position for the financial year.
Why can I receive a tax bill when I expected a refund?
There are several reasons why a taxpayer may receive a tax payable amount instead of the expected refund.
- Not enough PAYG tax was withheld
PAYG withholding is the amount of tax your employer withholds from your wages and pays to the ATO on your behalf.
If the total PAYG tax withheld during the year is less than your final tax liability, you may have an amount payable when your tax return is assessed.
This can occur for people who have multiple jobs or multiple sources of income.
- You earned additional income
Your tax return may include income that was not considered when you estimated your tax position.
Examples can include:
- Bank interest
- Dividends
- Investment income
- Business or sole trader income
- Income from a second job
- Other taxable income
Additional taxable income can increase your overall tax liability.
- HELP or other study loan repayments
Taxpayers with a HELP debt or another study and training support loan may have an additional compulsory repayment calculated when they lodge their tax return.
Employers may withhold additional amounts where an employee has advised them of a study loan debt. However, the final compulsory repayment is determined when the individual’s tax return is assessed.
As a result, someone who expected a tax refund may find that their final result is lower than expected or becomes payable.
- Medicare levy
The Medicare levy is another factor that can affect your final tax result. For many taxpayers, the Medicare levy is calculated as part of the tax return process.
The ATO states that the Medicare levy is generally calculated at 2% of taxable income, subject to applicable thresholds and circumstances.
Certain taxpayers may qualify for a reduction or exemption depending on their circumstances. Therefore, it is important to provide accurate information when completing the Medicare section of your tax return.
- Expected tax deductions cannot be claimed
Another common reason for an unexpected tax result is assuming that an expense can be claimed without having sufficient evidence or without meeting the eligibility requirements.
For example, a taxpayer may remember spending money on work-related items but may not have kept receipts or other records.
Without appropriate evidence, a deduction may not be available.
How can good record keeping help with your tax return?
Keeping good records throughout the financial year is one of the simplest ways to make your Australian tax return easier and more accurate.
Many taxpayers only start looking for receipts when tax time arrives. By then, receipts may have been lost, emails deleted or transactions forgotten.
Good record keeping can help you identify and substantiate legitimate tax deductions that you may otherwise overlook.
Examples of records you may need to keep include:
- Receipts and invoices
- Bank and credit card statements
- Work-related travel records
- Motor vehicle records
- Work-from-home records
- Phone and internet bills
- Tools and equipment receipts
- Education and training expenses
- Uniform and protective clothing receipts
- Professional membership records
- Other documents supporting work-related expenses
The ATO generally requires taxpayers to keep records supporting deductions for at least five years from the date the tax return is lodged.
Can keeping receipts increase my tax deductions?
Potentially, yes, if the expenses are genuinely deductible.
Keeping a receipt does not automatically make an expense tax deductible. The expense must first satisfy the relevant tax requirements.
However, if you have legitimately incurred an eligible work-related expense and have failed to keep the required evidence, you may not be able to claim it.
For example, suppose an employee spends $1,000 during the financial year on eligible work-related expenses. If the taxpayer keeps appropriate records and the expenses meet the ATO requirements, they may be able to claim the eligible amount as a deduction.
If the taxpayer does not keep sufficient evidence, they may be unable to claim some or all of those expenses.
This is why good record keeping can help taxpayers claim every legitimate tax deduction they are entitled to.
Important: Don’t spend money just to get a tax deduction
It is also important to understand that you should not purchase unnecessary items simply because you think they will reduce your tax.
A tax deduction does not mean the government gives you the entire amount of the expense back.
Instead, an eligible deduction generally reduces your taxable income. The actual tax benefit depends on your circumstances and applicable tax rates.
For this reason, taxpayers should focus on claiming legitimate deductions, rather than creating expenses simply to try to obtain a larger tax refund.
How can you reduce the risk of an unexpected tax bill?
While nobody can guarantee a tax refund, good preparation can help you avoid common mistakes.
Keep your records throughout the year
Don’t wait until tax time to search for receipts. Keep your receipts, invoices and other supporting documents as you incur expenses.
Check your income information
Make sure all relevant income has been considered, including income from multiple employers, investments and other taxable sources.
Review your PAYG withholding
If you have multiple jobs or other sources of income, consider whether the amount of tax being withheld throughout the year is appropriate for your circumstances.
The ATO provides current PAYG withholding information and tax tables for employers.
Keep evidence for your deductions
Don’t rely on memory. Keep documents that support the expenses you intend to claim.
Consider HELP and other study loan obligations
If you have a HELP or other study loan, understand how your income may affect your compulsory repayment.
Review your tax return carefully before lodging
Before your tax return is lodged, review your income, deductions, Medicare information and other relevant details carefully.
Don’t assume a tax refund – understand your tax position
One of the biggest misconceptions about tax returns is that every taxpayer should receive a refund.
A tax refund is not a guaranteed payment. It generally means that the amount of tax already paid or withheld during the year is greater than the final amount of tax calculated on your assessment.
Similarly, receiving a tax bill does not necessarily mean that something has gone wrong with your tax return.
It may simply mean that the total tax withheld during the year was not enough to cover your final tax liability, or that additional liabilities such as a compulsory study loan repayment apply.
The key is to understand why your tax return has produced a particular result.
How D&B Accountants Pty Ltd can help
At D&B Accountants Pty Ltd, we understand that receiving an unexpected tax bill can be frustrating, particularly when you were expecting a tax refund.
Our team can help you review your income, PAYG withholding, eligible tax deductions and other relevant information to ensure your Australian tax return is prepared accurately.
We can also help you understand what is contributing to your final tax result and what records you should maintain for future tax returns.
Don’t simply assume you will receive a tax refund. Make sure you understand your tax position and claim the legitimate deductions you are entitled to.
For professional assistance with your Australian tax return, tax deductions and tax planning, contact D&B Accountants Pty Ltd.