Good news, folks: You’ve probably got a massive tax refund coming your way this year as legislated cuts continue flowing through to households.
With tax time is approaching you don’t want to miss out on the extension of the Low and Middle Income Tax Offset (LMITO) and a little tax sweetener for the majority of working people are both up for grabs.
The LMITO extension is worth between $255 and $1080 depending on your income level, while the timing of a decision to bring forward stage two of the government’s income tax cuts last year means those earning up to $90,000 a year could get hundreds of extra dollars in their returns.
But you’ll also want to pay close attention to your tax return this year because the Australian Taxation Office (ATO) is on the hunt for dodgy claims, particularly dubious work-related expenses.
Let’s work out how much money you could get back first though.
Tax refunds: Offsets a plenty
BDO tax partner Mark Molesworth said there are two offsets set to benefit low and middle income earners at tax time.
The first is the LMITO, which the government extended in the budget earlier this month, while the second is a rebate on the low income tax offset for those who didn’t get the full benefit last year.
The second is the low income tax offset, which was increased to $700 for income brackets up to $45,000 last year, but because of the timing some people may still benefit this tax time.
“While this offset is usually taken into account in the amount withheld from employees’ wages, because the increase was only announced part way through the year, some of its benefit will not have been received in workers’ pay packets,” Mr Molesworth told The New Daily.
“If it is available, the full amount will be used to calculate your tax payable or refundable when you lodge your 2021 tax return.”
Meanwhile, the LMITO extension means those earning less than $37,000 a year will receive an extra $255 in their tax returns this year.
Those earning between $37,000 and $48,000 will receive $255 plus an extra 7.5 cents per dollar above $37,000 up to a maximum offset of $1080.
Those with incomes between $48,000 and $90,000 can expect the full $1080.
It tapers off from there, though, the offset falls by three cents per dollar above $90,000 until it hits zero for annual incomes over $126,000.
Stage two tax cut rebate
The stage two tax cuts were supposed to start on July 1 2022, but they were brought forward to July 1, 2021 as a pandemic stimulus measure.
But in a spot of awkward timing, it took until October 6 for the new laws to come in, meaning many workers were paying too much for months.
Last year’s pain is this year’s gain though, because it means you’re now due a refund for those taxes – although the exact amount will depend on your income and how long it took your employer to update their payroll.
A quick note on the tax cut itself; the 19 per cent marginal tax rate threshold was increased from $37,000 a year to $45,000 a year.
The upper income threshold for the 32.5 per cent tax bracket was also increased from $90,000 to $120,000.
It all means that someone earning $80,000 a year could get around $300 extra in their tax return this year, depending on how long it took their employer to update payroll, with the cut worth about $20 a week.
Adding this to the LMITO extension for income earners in that range, those on middle incomes can expect a return somewhere in the $1300-$1400 range.
Lower income earners won’t be so lucky, but could still get in excess of $500 from the combination of the low income tax offset rebate and the LMITO extension.
ATO watching for dodgy returns
It’s worth paying extra attention to your tax return this year, because the ATO is watching closely for people making dodgy work expense claims.
That’s because lots of people’s tax affairs have changed a lot during the pandemic, with working from home now much more popular changing the types of work-related expenses Australians are likely to be claiming.
In a statement on Thursday, ATO assistant commissioner Tim Loh said the ATO expects claims for cars and travel to fall in 2021-22.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said.
“But, if you are working at home, we would not expect to see claims for traveling between worksites, laundering uniforms or business trips.”
In other words, beware copy pasting your claim from 2019 or 2020.
“While its good to see most people have been doing the right thing, our data analytics will be on the lookout for unusually high claims this tax time, particularly where someone’s deductions are much higher than others with a similar job and income,” Mr Loh said.
If you’re looking for some advice about making the most of your work from home tax expenses, read our recent article about that here.
Happy tax claiming!