Why is my tax refund so small?

Clarke McEwan Accountants

Why is my tax refund so small?


The tax refund many Australians expect has dramatically reduced. We show you why.


There is a psychology to tax refunds that successive Governments have been reticent to tamper with. As a nation, Australia relies heavily on personal and corporate income tax, with personal income tax including taxes on capital gains representing 40% of revenue compared to the OECD average of 24%. And, for the amount we pay, we expect a reward.


The reward is in the form of tax deductions that reduce the amount of net income that is assessed for tax purposes and tax offsets that reduce the tax payable, generating a refund for some. And, refunds have a positive impact on tax compliance.


As part of the previous Government’s efforts to flatten out the progressive individual income tax system, a time-limited low and middle income tax offset was introduced. The lifespan of the offset was extended twice, partly as a stimulus measure in response to COVID-19. The offset delivered up to $1,080 from 2018-19 to 2020-21, and up to $1,500 in 2021-22 for those earning up to $126,000. This was a significant boost for many people each tax time and bolstered the tax returns of millions of Australians. For many, the end of this offset has meant that their tax refund has reduced dramatically compared to previous years.


Do we pay more tax than other nations?

It depends on how you look at the statistics. Australia relies heavily on income tax, collecting 40% of tax revenue from personal income. That makes Australia the fourth highest taxing nation for personal tax in the OECD – but we were second highest in 2019 if that makes you feel better. But, if you are looking at take home pay there is a separate measure for that. The Employee tax on labour income looks at our take home pay once tax is taken out and benefits have been added back in. This shows that the take home pay of an average single worker is 77% of their gross wage compared to the OCED average of 75.4%. For the average worker with a family (one married earner with 2 children), once tax and family benefits are taken into account, the Australian take home pay average is 84.1% compared to the OECD average of 85.9%. All of this means that Australia is a high taxing nation but returns much of that in the form of means tested benefits.


Australia also does not have social security contributions like other nations. These contributions represent an average of 27% of the total tax take for OECD nations.

And, because Australia has a progressive tax system, the pain of taxation is felt more by higher income earners. The top 11.6% of Australian income earners contribute 55.3% of the tax revenue from personal income tax.


With the final round of legislated income tax cuts due to commence on 1 July 2024, this should reduce the overall dependence on personal income tax relative to corporate and other taxes.

So, do we personally pay more tax than other nations? If you are a high-income earner the answer is likely to be yes. If not, the answer is no.

As Benjamin Disraeli reportedly said, “…lies, damn lies, and statistics”. It’s all how you read it.

 

Is a second job worth it?

In an Uber the other day, the driver revealed that he had become a driver to pay for his second mortgage. He invested in property but with interest rates spiking, the only way he could hold onto the property was to earn additional income. His “day job” starts early and ends at 3pm at which time he heads off to start driving.


He is not alone. The latest stats from the Australian Bureau of Statistics reveal that the number of workers holding multiple jobs has increased by 2.1% since December 2022 – in total, Australia has 947,300 people holding multiple jobs or 6.6% of the working population.


The reason why people take on second jobs is varied. For some, it is to manage increasing costs, for others it is to start up a new venture but with the security of a regular income stream from their primary occupation.


Is it worth it?

From a tax perspective, Australia has a progressive income tax system – the more you earn the more tax you pay, and access to social benefits tapers off.  It’s important when looking at a second job to understand your overall position – how much you are likely to earn, your costs of generating income, and what this income level will mean.


The trap for many picking up a ‘gig economy’ second job is that they are often independent contractors. That is, you are responsible for managing your tax affairs. All Uber drivers for example, are required to hold an ABN and be registered for GST. There is a compliance cost to this and from a cashflow perspective, 1/11th of the fee collected needs to be remitted to the Tax Office once a quarter. It’s important to quarantine both the GST owing and income tax to ensure you have the cashflow to pay the tax when it is due. The upside is you can claim the expenses related to your second job.


If you are taking on a second job, ensure that your tax-free threshold applies to your highest paying job from a PAYG withholding perspective.

By Clarke McEwan April 14, 2025
The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025. Each year, advisers await the December inflation statistics to the be released. The reason is simple, the transfer balance cap – the amount that can be transferred to a tax-free retirement account – is indexed to the Consumer Price Index (CPI) released each December. If inflation goes up, the general transfer balance cap is indexed in increments of $100,000 at the start of the financial year. In December 2024, the inflation rate triggered an increase in the cap from $1.9m to $2m. The complexity with the transfer balance cap is that each person has an individual transfer balance cap. If you have started a retirement income stream, when indexation occurs, any increase only applies to your unused transfer balance cap. Considering retiring in 2025? If you are considering retiring, either fully or partially, indexation of the transfer balance cap provides a one-off opportunity to increase the amount of money you can transfer to your tax-free retirement account. That is, if you start taking a retirement income stream for the first time in June 2025, your transfer balance cap will be $1.9m but if you wait until July 2025 your transfer balance cap will be $2m, an extra tax-free $100,000. Already taking a pension? If you are already taking a retirement income stream, indexation applies to your unused transfer balance cap - so you might not benefit from the full $100,000 increase on 1 July 2025. Where can I see what my cap is? Your superannuation fund reports the value of your superannuation interests to the ATO. You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov . If you have a self-managed superannuation fund (SMSF), it is very important that your reporting obligations are up to date.
By Clarke McEwan April 14, 2025
In the 2025-26 Federal Budget the Government announced a ban on non-compete clauses and “no poach” agreements. In the 2025-26 Federal Budget, the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on high incomes (under the Fair Work Act the high income threshold is currently $175,000). The reason? A recent Australian Bureau of Statistics (ABS) report found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees. From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years. Treasury’s consultation paper Non-compete clauses and other restraints states that, “the direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.” A Productivity Commission report estimates the effect of limiting the use of unreasonable restraint of trade clauses will be increased wages for workers - by up to up to 2.4% in industries with high use of non-compete clauses and up to 1.4% in others. Non-competes: the state of play  Non-compete clauses in Australia are generally enforced under common law. For all regions except New South Wales, restraints are generally presumed to be against the public interest and therefore void and unenforceable except where they are deemed to be reasonably necessary to protect the legitimate interest of the employer1. In NSW, a restraint of trade is valid to the extent to which it is not against public policy. When non-competes are contested, the courts consider the nature and extent of the business interest to be protected (e.g., confidential client information) and whether the scope of restriction the business wants imposed is reasonable including its geographic area, time period and activities which the restraint seeks to control. Interests considered ‘legitimate’ by courts include the protection of trade secrets or other confidential information; protection against solicitation of clients with whom the former worker had a personal connection; and protection against key staff being recruited by a former colleague. An employer is not entitled to protect themselves against mere competition by a former worker . What now The ban on non-compete clauses was announced in the 2025-26 Federal Budget. The Government has stated that it intends to consult on policy details, including exemptions, penalties, and transition arrangements. Following consultation and the passage of legislation, the reforms are anticipated to take effect from 2027, operating prospectively. There is a lot of uncertainty at this stage about this measure, despite the enthusiasm of the Treasury economists, not least of which is the impending election. We’ll bring you more as further information is available.
By Clarke McEwan April 13, 2025
From 1 July 2026, personal income tax rates will change. On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed. The modest reduction of 1% applies to the $18,201-$45,000 tax bracket, reducing from its current rate of 16% to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year. With a 1 July 2026 start date, the outcome of the Federal election on 3 May 2025 and subsequent budgets will determine whether this change comes to fruition. Medicare levy threshold change for low-income earners Low-income earners do not pay the compulsory 2% Medicare levy until their assessable income reaches the threshold. The threshold is different depending on whether you are a single taxpayer, pensioner, and the number of children you have that are dependent on you. Parliament has confirmed the increase to the Medicare levy threshold announced in the Federal Budget. The threshold change is backdated to 1 July 2024, which means that taxpayers will benefit when they lodge their 2024-25 tax return. See our Budget 2025-26 summary for details.
Super guarantee rules catch up with employers
By Clarke McEwan April 13, 2025
The superannuation guarantee rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers. Employers need to pay compulsory superannuation guarantee (SG) to those considered employees under the definition in the SG rules. But, the SG definition of an employee is broad and just how far this definition extends has sparked debate of late about the rights of performers, gym instructors and others not typically considered employees. For employers and business owners, it is crucially important that if there is any uncertainty about the rights of workers to SG, your position is confirmed. This might be an initial assessment of the position by us, confirmed by an employment lawyer, or clarified by applying for a ATO private ruling covering your specific workplace arrangements. One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions for workers who are classified as employees for SG purposes. One of the key features of the SG system is to ensure that appropriate contributions are being made for employees and deemed employees, to adequately support them in their retirement. The SG laws, and complimentary director penalty regime, ensure that every cent owing to an employee for SG is paid. Who is not paid super guarantee? Super guarantee does not need to be paid to: Under 18s who do not work more than 30 hours a week. Private and domestic workers who do not work more than 30 hours a week. Non-resident employees who perform work outside of Australia. Employees temporarily working in Australia covered by an agreement. Some foreign executives who hold certain visas or entry permits. Generally, SG is not payable if you have entered into a contract with a company, trust or partnership. If you have Australian employees temporarily working outside of Australia in a country with a bilateral social security agreement , for example, the United States, you should continue paying SG and apply for a certificate of coverage to avoid paying super (or the equivalent) in the country where the employee is temporarily located. SG’s broader definition of an employee There is a section of the SG rules, section 12 , that specifies who is deemed to be an employee for SG purposes. This section extends the definition of an employee beyond common law to cover: Company directors who are remunerated for performing duties; Contractors working under a contract wholly or principally for their labour; Certain state and Commonwealth government contracted workers; and Those paid to perform or present any music, play, dance, entertainment, sport or other similar promotional activity. This includes people who provide services in connection with these activities or people paid in relation to film, tape, disc or television. Are contractors entitled to SG? If your contractor holds an Australian Business Number (ABN), this of itself will not prevent SG from applying. Where the arrangement looks like it is a contract for the provision of an individual’s labour and skills, it is likely they will meet the definition of an employee and SG will be payable. The SG rules state if, “a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.” This definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for super guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says, if the person is deemed to be an employee under the rules, they are entitled to SG and the employer is obligated to pay it. The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them: under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour) for their personal labour and skills (payment isn't dependent on achieving a specified result) to perform the contract work (work cannot be delegated to someone else). In a recent ruling , the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the labour of the worker, but this will always depend on the facts. Are directors paid SG? Yes. Directors (members of executive bodies of bodies corporate) should be paid SG if they are remunerated for performing duties for the company. Entertainers, performers and sportspeople Generally, if a performer operates through a company, trust, or partnership then there is not an employment relationship and SG is not payable. However, individual artists, performers and sportspeople are captured as employees under the SG rules ( section 12(8 )) where they are paid to: perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills; provide services in connection with an activity referred to above; perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast. Whoever is paying the individual for their labour, is generally responsible for the payment of that individual’s SG. For example, a music festival operator that contracts a sole trader to perform at a festival might be liable for SG for that performer. Likewise, if the sole trader contracts band members to perform with them at the festival, then the sole trader is responsible for the SG of the band members. If however, the music festival worked with an agency to supply the performers (the music festival pays the agency, the agency pays the performers), then the agency is likely to be responsible for the SG of the artists if there is a liability. If the agency only charges a booking fee and the festival pays the performers directly, then the festival is likely to be responsible for the performer’s SG. You can see from this how important it is to determine who meets the definition of an employee for SG purposes, and if so, to understand the parties to the deemed employment relationship. What’s a service “in connection to” The definition of an employee for SG purposes captures workers who work with performers, for example individuals that are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then it is likely SG is payable. Is a gym instructor a sportsperson? A gym instructor may be captured under the definition of a deemed employee under the SG rules. Whether the gym is liable to pay the instructor SG really depends on the facts of the individual arrangement. Let’s look at the example of a gym instructor operating as a sole trader under an ABN. There is a contract between the instructor and the gym stating that the instructor is an independent contractor and is responsible for their own SG payments and other employment obligations. The instructor is paid per class, and per training session with clients, covering their time and labour. The instructor utilises the equipment of the gym and its scheduling system. The instructor wears the uniform of the gym. The instructor is trained by the gym in how to deliver the services of the gym.  Employee? Most likely because the ATO places a heavy significance on whether an individual is working to build their own business or someone else’s. If the instructor “..works under a contract that is wholly or principally for the labour of the person” then this also brings them into the SG net. If the employer, the gym, had not been paying SG, is it exposed to SG payments for the instructor since the employment relationship began.
Federal Budget 2025-26: what it means for your small business
By Clarke McEwan March 29, 2025
The Treasurer, Jim Chalmers, delivered the Federal Budget on 25 March. But what’s in the Budget for small business owners? We’ve got the lowdown on the main opportunities. #FederalBudget #Budget #businesstips
By Clarke McEwan March 21, 2025
As your accountant, we won't just look after the financial side of your business, we can also advise you on the strategic side of your company, including the importance of business development as vital part of your growth plan. Business development (BD) is what helps your company move from slow, organic growth to fast-paced, hypergrowth. And it’s only by putting the right drive and expertise behind your BD that you can turn your strategic ideas into real success stories. So, how can we help you achieve this? Talk to you about your strategic goals The starting point for any kind of BD activity is to pin down your goals and aims as a business. When you know what you want to achieve over the coming months, it’s far easier to define a strategy for success. And that’s easier to do when you talk to an objective adviser, like us. We can sit in on your board meetings, talk to your executive team and get a real handle on what makes the business tick. And, armed with this knowledge, we’ll work with you to drive the direction of your BD and find the best opportunities for you to focus on. Help you create a clear BD strategy and plan Having a defined set of BD goals is a good starting point. But to put this all into action in a productive way, you’re going to need a comprehensive plan for your BD projects. Our years of experience advising business leaders and their teams really comes into play here. We know the best routes to take, the budgets that will be needed and the right tactics for bringing in more contracts, sales and partnerships. By putting these strategies into a clear plan, and linking this to agreed timescales, you have a BD route map to follow and action. Introduce you to a broader network of business partners We work with a wide range of businesses across many different sectors, industries and niches. By introducing you to our network of clients, we welcome you into a supportive community of like-minded business owners. And that’s excellent news when looking for new partnerships. Whether it’s attending a local conference, an online webinar or one of our in-house client events, you’re going to meet new people, share new ideas and make the right connections. This is a great way to build alliances and work together with other local businesses. And when you’re well-connected, you set the very best foundations for your future BD activity. Provide better routes to funding and investment Whatever goals you’ve set for your BD projects, it’s likely that you’re going to need additional funding to finance this activity. Investing in your expansion, or new partnerships, is vital to getting a good return on your BD, so great access to finance is a definite bonus. We’ll advise you on the most appropriate funding channels and how you can use these facilities to finance your BD plans. And we can also link you up with banks, lenders and business finance specialists – so you get the advice and finance you need to bring your BD to life. Help you track and measure your BD performance Meeting your BD targets takes time – and a whole lot of dedication. Measuring your BD performance over time, helps you stay on track and gives you a good indication of how well you’re tracking against your planned progress. We’ll help you create the reporting and metrics you need, so you have clear data to track your progress over time. You can log your activity in your project management system, or your client relationship management (CRM) software, and keep clear notes on contacts made, relationships built and targets converted etc. If you want to get more from your BD, please do get in touch. We’ll partner with you to put some real drive, experience and impetus behind your BD strategies.
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