How much tax am I getting back? As you would expect, I hear the question quite a lot when people bring in their information for me to prepare their financial accounts and tax returns. It’s actually a little bit of a frustrating question. I can put together the information that you provide and make enquiries to make sure that we don’t miss any deductions.
But that is all I can do for you if your approach is just to see me to get your tax done.
Do you realise that the only reason you get a refund is because you have already paid that tax and you didn’t need to? Would you have better uses for that money for the financial year just gone? And if you don’t get your information to me until May of the following year, that’s almost another year that the tax office has been holding your money!
Something else to be aware of when considering your tax refund. You may get a refund whether your income is $250,000 or $25,000. Your level of refund in no way takes into account what you should be paying attention to. Your average rate of tax.
In Australia we have several tax brackets, and the rate of tax you pays goes up as you move up through the tax brackets. These rates and brackets often change at the beginning of every financial year. Basically, for the 2022 financial year the average rate of tax for taxable income of $250,000 is 36.7%. The average rate of tax for taxable income of $25,000 is 0.3%.
There are perfectly legal, legitimate and commercially sound methods of reducing your average rate of tax. But only if we talk during the year on a regular basis to see what strategies are available to you, especially if you are looking at business opportunities or actually, ANY of your goals. The next best option is to talk before the end of the financial year to identify any strategies that can be implemented before 1 July rolls around and the opportunity passes you by.
1 July will be here before you know it so time is running out to take any action.
And remember that spending money just to get a tax deduction also a bad wealth strategy. You may reduce your taxable income. If you are at the highest tax bracket that means you get 47% back of the cost you paid. But if you don’t receive a return on your investment, you have spent 100% on something not useful. Tax should never be the first and only consideration for a purchase.