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Australians Facing Unprecedented ATO Tax Bills: What You Need to Know
Many Australians are experiencing surprising tax outcomes this financial year, with a significant number encountering tax bills instead of the anticipated refunds. Tax accountant Belinda Raso from Tax Invest Accounting has shed light on this trend, emphasising its connection to the operation of the payroll system.
A Shift in Tax Returns
Since the commencement of the new financial year, social media platforms have been buzzing with users sharing their tax return results. While some Australians celebrate substantial refunds, others express their incredulity at receiving unexpected tax demands.
Raso notes that a growing number of individuals, particularly those juggling multiple jobs, are facing tax liabilities. A critical factor contributing to this situation is the discontinuation of the $1,500 low and middle income tax offset, which ceased on June 30, 2022.
The Mechanics of the Payroll System
According to Raso, the intricacies of the payroll system can lead to significant misunderstandings. Even if an employee correctly opts out of claiming the tax-free threshold at a secondary job, insufficient tax is withheld from those earnings. For instance, if an individual earns over $45,000 from their main job, they fall into the 32% tax bracket, inclusive of a 2% Medicare Levy.
However, income from a second job, where the tax-free threshold is not claimed, is taxed at a lower bracket of 16% plus the 2% Medicare levy. For someone already surpassing the initial tax threshold with the main job, this disparity can create a substantial tax gap, leading to unexpected tax bills.
Proactive Measures for Taxpayers
To mitigate these issues, Raso advises that individuals in similar situations should:
- Request employers to withhold additional taxes from their paychecks.
- Set aside extra funds themselves throughout the year to cover potential tax liabilities.
- Alternatively, opt-out of the tax-free threshold on their primary job.
Failing to take these steps could result in a repeat of this predicament in future tax years.
The Growing Trend of Multiple Job-Holders
Recent data from the Australian Bureau of Statistics indicates that around 963,100 Australians held multiple jobs as of March, constituting 6.5% of the workforce. Raso believes that revamping the payroll system could ease the burden of unexpected tax debts, ultimately leading to fewer frustrated taxpayers.
Additionally, those with HECS-HELP debts should ensure their employers are aware of this obligation. Without proper notification, individuals risk accumulating tax debt, as HECS repayments are calculated using total earnings, including salary sacrifices and fringe benefits.
Other Factors Leading to Tax Debts
Beyond employment-related income, several other elements could contribute to unforeseen tax liabilities. These include:
- Additional income streams from side activities, interest earnings, investments, or property rental.
- Fringe benefits and salary sacrifices, which can inflate taxable income and lead to higher repayments.
- The Medicare Levy Surcharge, which impacts individuals earning over $101,001 or families exceeding $202,001 who lack adequate health insurance.
Tax bills can arise if combined income from multiple jobs surpasses the HECS repayment threshold—currently set at $54,435 for the 2025 financial year.
Managing Tax Obligations
For those who receive a tax bill, it’s crucial to adhere to the payment deadline indicated on the Notice of Assessment. If timely payment is not possible, individuals can request the Australian Taxation Office (ATO) to establish a payment plan, allowing them to settle the bill in smaller instalments.
It’s essential to note that late payments incur a general interest charge, which currently stands at 10.78% annually and accrues daily, even under a payment arrangement.
Conclusion
The financial year 2025 has brought unforeseen challenges for many Australians regarding tax obligations, particularly for those juggling multiple jobs. To avoid future surprises, taxpayers should stay informed and proactive about their financial responsibilities, making necessary adjustments to their withholding strategies.
For a deeper dive into financial matters, individuals are encouraged to follow platforms offering up-to-date insights and advice on navigating the complexities of tax obligations.
