Calculations by the Institute of Public Accountants have revealed that taxpayers could be up for a larger-than-expected tax refund this year due to a combination of three factors, including the continuation of the Low Middle Income Tax Offset (LMITO) worth up to $1,080 per individual, four and a half months of backdated stage 2 tax cuts worth up to $800, and the ability to claim working-from-home expenses for a large part of the financial year valued at around $1,500.
While the temptation to lodge early this year may be great, taxpayers have been urged to hold out until the ATO finalises income statements and pre-fill information to avoid a surprise tax bill down the road.
“We understand that some individuals have been adversely impacted by COVID-19 through loss of employment or reduced earnings and they will want to get their hands on their refund as quickly as possible,” said the IPA’s chief executive, Andrew Conway.
“The big danger in moving too quickly is the limited pre-fill information which progressively appears well after the end of the financial year. The ATO receives a plethora of data from other government agencies such as Services Australia and the Land Titles Offices. In addition, there is data coming from third-party providers such as financial institutions, share registry companies, and companies and trusts paying dividends or distributions.
“Our strong message is to wait for the information to become available before you lodge; otherwise, you may end up with an unexpected tax bill and angst down the track.”
Previous attempts to warn taxpayers against lodging early have fallen on deaf ears, with the ATO recording its biggest 1 July ever last year with 740,000 lodgements on the day, leading to a failure of its online systems.
This year, the ATO will only begin full processing of tax returns from 7 July, with tax refunds expected to flow from 16 July.
With the ATO now receiving critical data on cryptocurrency transactions, e-commerce sales from eBay and Amazon, and gig economy activities such as Uber and Airbnb, early lodgers are being warned that the risk of potential audits and amendments are now higher than ever.
“So, it is no longer just interest, dividends and trust distributions that the ATO will be looking for,” Mr Conway said.
“Gains on property and cryptocurrency transactions, side hustles on e-commerce platforms, contractor services performed in sectors which have been previously found to be non-compliant, derivative trading etc are among the information that the ATO will compare with what has been lodged.
“If someone has any income from these varied sources, then it is even more important not to lodge early until this data has had time to hit the pre-fill records.
“The ATO already amends quite a number of returns post-lodgement. Discrepancies will create reverse workflow and expose taxpayers to interest and/or penalties.”