That gleaming tax refund you’ve been mentally spending? The ATO might have other plans. While thousands of Australians are staring at smaller numbers this year with a mix of confusion and mild existential dread, there’s a perfectly reasonable explanation for that low tax refund—even if it doesn’t feel that way while you’re cancelling your hypothetical holiday.
The reality is, a smaller refund often means the system is working exactly as it should—you’re paying the right amount of tax throughout the year rather than giving the ATO an interest-free loan. Still, sudden changes in your refund amount can be concerning and usually signal some significant shifts in your tax situation. So, if you’ve been asking yourself, “why is my tax refund so low?”, here’s what might have happened to your hard-earned dollars.
The LMITO is Long Gone (But We’re Still Not Over It)
Remember the Low and Middle Income Tax Offset (LMITO)? That beautiful boost to our tax returns that gave eligible Australians up to $1,500 extra? Well, it ended in June 2022, and its absence is still being felt in the 2023-24 tax year.
For those wondering why this particularly stings: if you earned between $48,000 and $90,000 in previous years, you would have received the full offset of $1,500. That’s enough to cover a decent holiday or several months of coffee and avo toast (though your accountant would prefer you invested it).
Your Income Has Changed (Maybe More Than You Realised)
Even a small pay rise can push you into a higher tax bracket or affect your tax-free threshold calculations. For the 2023-24 financial year, the tax brackets are:
- $0 – $18,200: No tax
- $18,201 – $45,000: 19% above $18,200
- $45,001 – $120,000: $5,092 plus 32.5% above $45,000
- $120,001 – $180,000: $29,467 plus 37% above $120,000
- $180,001+: $51,667 plus 45% above $180,000
That promotion might be doing things for you career-wise, but if it bumps you up into the next tax bracket, it could mean a smaller refund. Another thing we sometimes see is that pay increases or bonuses are under-taxed by the employer’s accounting software.
If you picked up a second job, you could also run into unexpected tax bracket changes. Your employers may have calculated tax at the rate of your income with them individually. When all your income streams combine at tax time, the total may push you into a higher tax bracket.
HELP/HECS Repayment Thresholds
If you have outstanding student debt, that pay rise or second job could hit you with a one-two punch. You might go up a tax bracket and pop up into a higher HELP/HECS repayment threshold. For the 2023-24 financial year, the compulsory repayment rates start when your income hits $51,550. From there, the brackets are as follows:
- Below $51,550: Nil
- $51,550 – $59,518: 1.0%
- $59,519 – $63,089: 2.0%
- $63,090 – $66,875: 2.5%
- $66,876 – $70,888: 3.0%
- $70,889 – $75,140: 3.5%
- $75,141 – $79,649: 4.0%
- $79,650 – $84,429: 4.5%
- $84,430 – $89,494: 5.0%
- $89,495 – $94,865: 5.5%
- $94,866 – $100,557: 6.0%
- $100,558 – $106,590: 6.5%
- $106,591 – $112,985: 7.0%
- $112,986 – $119,764: 7.5%
- $119,765 – $126,950: 8.0%
- $126,951 – $134,568: 8.5%
- $134,569 – $142,642: 9.0%
- $142,643 – $151,200: 9.5%
- $151,201 and above: 10%
The government did announce in November 2024 that the HELP/HECS repayment threshold would increase to $67,000. However, this change won’t go into effect until the 2025-26 financial year. Graduates will benefit from both the higher threshold and a fairer calculation method. Under the new system, you’ll only make repayments on income earned above the threshold. This replaces the old method, which calculated repayments based on your entire annual income.
However, you’ve got a bit of waiting to do before this update kicks in. For the 2023-24 tax year, the thresholds listed above still apply —which might explain why your refund looks different from what you expected.
Outstanding Debts Are Catching Up
Speaking of student loans, the ATO has a rather direct way of dealing with outstanding debts—they simply take them from your refund. This can include:
- HELP/HECS student loans
- Previous tax debts
- Child support payments
- Centrelink debts
- Family assistance overpayments
While you might have forgotten about that decades-old HECS debt, the ATO’s memory is impeccable. They’ll offset these debts against your refund faster than you can say, “but I didn’t even finish that course!”
The ATO Has Levelled-Up Its Data Matching Game
The ATO’s data matching system now rivals the attention to detail of a forensic accountant on a caffeine rush. They receive information from:
- Banks and financial institutions
- Share registries
- Cryptocurrency exchanges
- Payment platforms (including your PayPal and Square)
- Health funds
- Government agencies
- Employers
- Property transactions
If there’s a discrepancy between what you’ve declared and what these sources report, the ATO will adjust your return accordingly.
Pro tax tip: While the ATO’s data matching capabilities have improved, there can still be errors in the data, which could lead to incorrect assessments. So it’s always a good idea to review your tax return carefully and seek professional advice if you receive an audit notice or have any concerns.
Your Deductions Have Changed
Working from home less? That could mean lower deductions. The ATO’s working-from-home deduction rules changed significantly in 2023, affecting many taxpayers who previously claimed substantial home office expenses.
Common deduction changes that might affect your refund:
- Reduced work-from-home expenses
- Changed vehicle use for work
- Different uniform or tool requirements
- Expired self-education expenses
- Investment property depreciation changes
Another often-overlooked factor is the natural lifecycle of business assets and equipment. That ergonomic chair you claimed last year? Its depreciation value drops each year until it hits zero.
Similarly, if you invested in a top-of-the-line laptop or specialised equipment in 2022-23, but didn’t need to replace any major items this year, your deductions could look significantly different. The same applies to work vehicles, tools, and other depreciating assets that might have reached the end of their effective life for tax purposes.
Investment Income Changes Can Lead to a Low Tax Refund
The market’s ups and downs influence your tax position more than you might think. Changes that could impact your refund include:
- Different dividend payments from previous years
- Capital gains from asset sales
- Changed investment property income
- Foreign income fluctuations
- Cryptocurrency gains or losses
Even if your investments performed similarly to last year, changes in how companies distribute their profits can impact your tax position. For instance, if a company moved from paying fully franked dividends to partially franked ones, or shifted from dividend payments to share buybacks, your refund could look quite different—even though your underlying investment value hasn’t changed.
Also note that losses from one type of investment can’t always offset gains from another—cryptocurrency losses, for example, generally can’t be used to offset your rental property income.
Medicare Levy and Surcharge
The Medicare Levy (2% of taxable income) and Medicare Levy Surcharge (up to an additional 1.5%) can significantly impact your refund. The surcharge kicks in if you earn over $97,000 (singles) or $194,000 (families) and don’t have appropriate private health insurance.
Pro tax tip: Note that these thresholds can be affected by other factors, such as family income and the type of private health insurance coverage.
A subtle trap many people fall into is assuming their income won’t reach these thresholds based on their base salary alone. But the ATO’s definition of income for Medicare Levy Surcharge purposes includes more than just your wages—it also counts reportable fringe benefits, rental property income, and even the “deemed earnings” from some salary sacrifice arrangements.
This means you might unexpectedly cross these thresholds without realising it, leading to a surprisingly lower refund. If you want to avoid surprises like this, we recommend using our straightforward tax calculator to get a feel for how your reportable fringe benefits and other earnings may impact your tax refund.
Pro tax tip: Private health insurance taken out after the fact won’t help—you need to hold appropriate cover for the entire financial year to avoid the surcharge in full.
Tax Offset Changes Can Lead to a Low Refund
Tax offsets (sometimes called rebates) can significantly impact your refund amount. For the 2023-24 financial year, several key offsets could affect your tax return—and understanding them is crucial for managing your expectations.
Low Income Tax Offset (LITO)
The LITO remains a crucial support for lower-income earners in 2023-24. Here are the limits you need to know:
- The maximum amount is $700 for taxable incomes up to $37,500
- The rebate reduces at a rate of 5 cents per dollar between $37,501 and $45,000
- It further reduces at 1.5 cents per dollar between $45,001 and $66,667
- The LITO phases out completely at $66,667
If your income has increased beyond these thresholds, you might notice a smaller refund compared to previous years.
Senior and Pensioner Tax Offset (SAPTO)
For eligible seniors and pensioners, SAPTO can provide substantial tax relief. Here are the relevant limits for the 2023-24 financial year:
- Singles: Maximum $2,230, fully phases out at $50,119
- Couples: Maximum $1,602 each, fully phases out at $41,790
- You must meet the age and eligibility requirements set by Services Australia
How Can Tax Offset Changes Lead to a Lower Tax Refund?
Your refund might be lower this year if:
- Your income has increased, reducing your eligibility for LITO or SAPTO
- You previously received the LMITO but can’t claim it anymore
- Your dependant’s income has changed, affecting your eligibility for the Dependent Tax Offset
Tax offsets are applied after calculating your tax payable, and unlike deductions, they directly reduce your tax liability dollar for dollar. This means changes to offset eligibility can have a substantial impact on your final refund amount.
What Can You Do About a Low Tax Refund?
While we can’t magically make the ATO more generous, there are several practical steps to help you maximise your legitimate deductions and avoid tax-time disappointment next year.
The key is to shift from reactive scrambling—think frantically searching for year-old receipts in your car’s glove box—to a more systematic approach. And no, stuffing everything into a shoebox labelled “tax stuff” doesn’t count as a system, no matter how nice the shoebox.
Here’s what does count as a solid tax prep system:
- Keep Better Records
- Use the ATO app for real-time deduction tracking
- Save receipts immediately (digital copies are fine)
- Log work-related expenses as they occur
- Plan Ahead
- Calculate your estimated tax position before year-end
- Consider salary sacrificing to reduce taxable income
- Time major purchases or investment decisions strategically
- Check Your Tax Withholding
- Review your PAYG withholding rate
- Consider varying your withholding if needed
- Account for multiple income sources
- Understand Your Obligations
- Know which deductions you’re eligible to claim
- Stay informed about tax law changes
- Keep up with ATO announcements
- Get Professional Help
- Use a registered tax agent to ensure you’re always maximising your refund
- Ask questions about your specific situation
- Plan for future tax years
The good news? ITP clients don’t have to wait until tax time to get expert advice. Our year-round tax support means you can pick up the phone or drop into a convenient branch anytime you have a tax question. If you’re overseas or in a regional area, you can send us an email or book online for remote assistance. Whether it’s about a new job, an investment property, or another tax-related issue, our accountants are always happy to offer insights and advice.
This proactive approach helps ensure you’re making smart tax decisions throughout the year while keeping everything above board with the ATO. Think of us as your tax-savvy friend who actually enjoys reading ATO updates.
Understanding Your Lower Tax Refund
The most important thing to remember is that a smaller refund doesn’t necessarily mean you’ve paid more tax—it might just mean your employer has been more accurate with their PAYG withholding. If you’re self-employed, it might mean you deserve a pat on the back for calculating your tax obligations accurately.
Another thing to keep in mind is that every tax situation is unique. What works for your colleague might not work for you (especially if the reason for the big tax refund they’ve been bragging about is that they claimed a few deductions they’re not entitled to).
If you’d like to understand exactly what’s affecting your refund or want to explore strategies to optimise your tax position for next year, ITP’s accountants are here to help. Book a consultation, and we’ll walk you through your options in plain English—no accounting degree required.