Why You May Receive a Tax Bill
You may have seen in social media that some Australians have been disappointed in the outcomes of their 2023 individual income tax returns. With costs of living rising, those who may rely on that healthy tax refund have found the result being lower than expected or are facing tax debt. It raises the question as to why there has been an increase to an individual’s tax liability for the 2023 tax year.
There are a few factors that can affect the outcome of your tax return that are explored below.
Removal of Low- and Middle-Income Tax Offset (LMITO)
This offset was first introduced in the 2019 tax year by the Government to provide tax relief for individuals earning up to $126,000 annually. This was subsequently extended during the COVID-19 pandemic. LMITO provided a tax offset to those eligible individuals of up to $1,500 and ended in the 2022 tax year.
For the 2023 tax year, taxpayers may be experiencing tax shortfalls where, in previous tax years, this was covered by LMITO.
Repayments of this Government scheme that assists eligible Commonwealth supported students to pay their tertiary studies with a loan, is calculated from the amounts declared on your tax return.
HECS-HELP repayments are not just calculated on your taxable income. The HECS-HELP repayment income also includes the following amounts:
• Reportable fringe benefits
• Reportable super contributions
• Net investment losses (including net rental losses)
• Exempt foreign income while an Australian resident.
Where salary sacrificing into reportable fringe benefits or super contributions reduces tax owing for a taxpayer (i.e., a lower salary reduces tax withheld), these amounts are added to your repayment income in determining your liability for HECS-HELP repayment purposes.
Likewise, negative gearing amounts are included in your HECS-HELP repayment income. Note that with interest rates rising, this gives way to higher negative gearing amounts and consequently, higher repayment income.
Further, on 1 June of each year, indexation is applied to your accumulated HECS-HELP debt that remains unpaid. Indexation is applied to keep the value of your debt in line with cost of living as measured by consumer price index (CPI). For the 2023 tax year, study and training loans were indexed by 7.1%, adding more pressure as taxpayer’s withheld amounts are not calculated until after the end of the income year. This increases the risk that the taxpayer’s withheld amounts will not cover the calculated HECS-HELP repayment income.
Incorrect PAYG Withholding
This can occur when your PAYG Withholding declaration provided to your employer is completed incorrectly:
• Amounts withheld from your salary may not be sufficient to cover your HECS-HELP repayment obligations.
• Incorrectly claiming the tax-free threshold on your second or multiple jobs (the first $0 – $18,200 of taxable income has nil tax for the 2023 and 2024 tax years).
• Incorrect calculation of entitlements to offsets.
As we look ahead, there will be some relief if Stage Three personal income tax cuts are implemented. These are set to commence on 1 July 2024 and will see the tax rate reduced to 30% for those taxpayers earning between $45,000 and $200,000. In the meantime, if you would like to better understand your current tax position, please contact your Hall Chadwick Qld advisor.