Why is my tax refund so low?

Over 14 million tax returns will be lodged in Australia this year – and for many of these taxpayers the best part of the process is the possibility of getting a big refund. The average tax refund in 2022 for self-preparers was $2,576 and the average refund for tax agent clients was $3,550. In other words, tax agent clients got nearly $1,000 in additional refunds.

Many people would have noticed that their refund in the 2023 year was quite a bit smaller. This was because of the abolition of the Low and Middle Income Tax Offset. The bad news is that this offset is well and truly gone so your refund for 2024 – assuming your circumstances haven’t changed materially – is likely to be about the same as in 2023. 

However, even in 2023, refunds for clients who used a tax agent were considerably higher than those for self-preparers. It pays to use a tax agent, who is able to dig for legitimate deductions and offsets that you might not have known you were entitled to, feeding into a bigger refund!

Here we’ll answer the four biggest questions about tax returns this year:

Why was my 2023 tax refund lower than I expected?

Several reasons could explain why your 2023 tax return was lower than expected. 

One major factor is the discontinuation of the Low-Middle Income Tax Offset (LMITO), a scaled benefit that previously delivered a tax break of up to $1,500 to anyone with a taxable income of up to $126,000. 2023 was the first time in several years that this offset was not available, making a difference of between $675 and $1,500 to many tax returns.

Another significant change in 2023 was the shift in how deductions could be claimed by anyone working from home. Taxpayers could no longer use the 80c-per-hour “shortcut” method (temporarily introduced in 2020) or the old 52c-per-hour fixed rate. Instead, they had to use either the revised fixed rate method or the actual cost method to calculate deductions. The actual cost method remained the same, but the fixed rate method changed to 67 cents per hour for each hour worked from home for a specific list of expenses, including electricity and gas usage, phone usage (mobile and home), internet usage, stationery, and computer consumables.

It’s worth noting that taxpayers couldn’t claim additional deductions for these expenses if they used this method. For example, they couldn’t claim a separate deduction for using their mobile phone for work purposes as well as at home if they were using the fixed rate method. Instead, they had to choose the actual cost method.

Taxpayers had to keep a four week diary of all the hours they worked from home covering the period from 1 July 2022 to 28 February 2023 and a complete record of their working from home hours (in the form of a diary, timesheets or copies of rosters) from 1 March 2023. Taxpayers who don’t comply with these requirements were not able to claim the revised fixed rate. 

These rules remain in place for 2024, and if anything have got even tougher. It is now necessary to keep a complete record of working from home hours for the entire tax year (in the form of a diary, timesheets or copies of rosters).

What will happen to my tax refund in 2024?

If your particular circumstances remain the same as last year, it should be about equal to the 2023 figure. 

The LMITO is just a distant memory now so it won’t be a factor in your 2024 return.

And don’t forget those additional compliance requirements to claim the 67 cents per hour working from home rate. If you haven’t got the substantiation required, you might not be able to claim, even if you did work from home for part or all of the year!

What should I do if my tax refund is lower than I expected?

The first thing you need to do is to closely review the tax return and double check whether it’s aligned with your expectations. If not, you need to take action. 

The best way to do this is to speak to an experienced tax professional, such as one of the knowledgeable tax consultants here at H&R Block. If you completed your tax return on your own using a service such as myTax or have lodged your return through another tax agent, then you can get a second opinion by using H&R Block’s FREE* second look assessment service, where we will review your return and provide you with advice on how to proceed. If you’re a current H&R Block client, you can approach your local office or call 13 23 25 to get immediate assistance and advice.

We’re here to help you get the best possible result and if there is indeed an issue with your return such as an error or missing deductions that should have been included, we will help you to lodge an amendment to make sure you get the correct result. 

How can I boost my tax refund next year?

Working with a trusted tax consultant is the number one way to make sure you get every dollar you’re entitled to at tax time this year and in the future. 

There are so many deductions that many people miss – such as the depreciation of home office furniture and computers, superannuation contributions, education expenses and fees for financial advice – so it really does pay to get someone in the know to help you complete your return and to make sure you have proof of purchase for everything you include. 

Our team here at H&R Block will make sure you get ALL the tax deductions you’re entitled to, which will help you to secure the maximum possible refund going forward.