“How BIG is your Tax Refund?” by Tina Zawila

At this time of the year, there’s still lots of talk about tax refunds, and often it’s a competition about “who’s is bigger”!  However, it often surprises us how many people have no idea how their refund is calculated or what they should expect from their tax refund.  And recently we’ve seen first hand the potential problems that arise when you simply apply “the biggest is best” principle!

So let me explain some basic tax facts:

• You can only get a refund if you have paid tax during the year – some obvious examples of paying tax during the year include: where your employer has deducted tax from your wages, or the bank has withheld tax from your interest income, or you receive franked dividends (which gives you a tax credit for the tax paid by the company who paid you the dividend).  If you have not had any tax deducted from your income, then you cannot receive a tax refund.
  
  
• You can’t get back more tax than you have paid – same principle as I mentioned above, but with a slight variation.  If you have only paid $1,000 of tax throughout the year (let’s say it’s been deducted from your wages), then the maximum tax refund you can receive is $1,000.  No additional deductions can increase your refund to exceed the tax you have paid.
  
  
•  You don’t get $1 tax back if you spend $1 on a tax deductible expense – A $1 tax deduction, will reduce your taxable income by $1.  Which depending on which tax bracket you find yourself in, could save you anything between zero and 49 cents in tax.  So at most, you will get 49 cents back on your $1 tax deduction, and you may not receive any tax back at all if your income is below the taxable threshold.

Most importantly, sometimes it’s not the size of the refund that matters, it’s what you do with it that counts.  How do you use your tax refund each year – do you invest it to create more wealth, or does it just seems to go towards those never-ending bills? 

At Sothertons Gladstone, our goal is to minimise your tax and maximise your wealth.  Everyone’s situation is different, call our team today on 4972 1300 to discuss your individual tax position.