Why is my tax refund so low?
- Leonie Martin
- Mar 31
- 7 min read
Updated: 3 days ago
A tax refund is the amount of money returned to you by the Australian Taxation Office (ATO) if you’ve paid more tax throughout the year than necessary. It’s often seen as a small bonus or an extra financial boost, especially if your employer has withheld more tax than you actually owe. The purpose of a tax refund is to correct the balance between what you owe in taxes and what’s already been paid on your behalf.
However, it can be frustrating when your tax refund is lower than expected or even if you owe money instead. There are several reasons why this might happen, such as incorrect tax withholding, missed deductions, or changes in your financial situation throughout the year. According to the Australian Taxation Office (ATO), your refund amount depends on how much tax you've paid versus how much you actually owe. If you’ve been asking yourself, "Why is my tax refund so low?" this article will help explain the common causes behind a smaller refund and provide you with tips on how to manage your taxes more effectively in the future.
Common Reasons for a Low Tax Refund
1. No Estimated Taxes with Gig Income
If you earn income from gig work, freelancing, or side jobs, tax is usually not withheld unless you’ve arranged PAYG instalments.. This can lead to a smaller refund because you haven’t paid taxes on that income throughout the year. To avoid this, it’s crucial to set aside a portion of your gig earnings for taxes and speak to your accountant about whether you should register for PAYG instalments Failing to do this can result in either a smaller tax refund or a tax bill when you file your return.
2. Not Accounting for Withholding Across Multiple Jobs
When you have multiple jobs, each employer may not withhold enough tax, assuming you're only working for one. If you don’t adjust your PAYG withholding at each job, it could lead to insufficient tax deductions. This may cause you to owe tax when you file, or it could reduce your refund because your total income might push you into a higher tax bracket.
3. Not Factoring Eligibility Changes for Tax Credits and Deductions
Your eligibility for tax credits and deductions can change year by year. For example, you may no longer qualify for certain credits, like the Low-Income Tax Offset, or deductions for work-related expenses. If you don’t take these changes into account when filing your taxes, it could result in a smaller refund, as you may not be claiming the same benefits as you did in previous years.
4. Unpaid Debts
If you have any outstanding debts, including taxes owed to the Australian Taxation Office (ATO), your tax refund may be reduced or offset to cover those debts. The ATO can use your refund to pay off overdue taxes or other government-related debts like unpaid tax, child support, Centrelink debts, or HELP repayments,. which means your refund could be much lower than expected.
What Should You Do If Your Tax Refund Is Low?
If your tax refund is lower than expected, don’t worry. There are steps you can take to understand why and make improvements for next year.
1. Review Your Tax Return
It’s important to carefully check your tax return to make sure everything is correct. Even small mistakes, like entering the wrong income amount or missing a deduction, can affect your refund.
Double-check your details: Make sure your income, expenses, and personal details are correctly entered.
Look for missing deductions: You may be able to claim work-related expenses, donations, medical costs, or investment-related deductions.
Check for tax offsets: Some people qualify for tax offsets that can reduce the amount of tax they owe.
Seek professional help: If you’re not sure, a tax agent or accountant can review your return and find any missed opportunities to save money.
Fixing errors or claiming missing deductions can sometimes result in a higher refund or reduce how much tax you owe.
2. Adjust Tax Withholding
Your tax refund depends on how much tax is taken out of your pay throughout the year. If too little tax was withheld from your salary, your refund will be smaller or you may even owe tax.
Check your withholding amount: Look at your pay slips or tax return to see how much tax was deducted.
Use the ATO’s withholding calculator: The Australian Taxation Office (ATO) provides tools to help you estimate the right amount of tax to be taken out of your income.
Update your withholding settings: If needed, you can fill out a new tax declaration form with your employer to adjust how much tax is deducted.
By making sure the right amount of tax is withheld, you can avoid unexpected tax bills and ensure a more accurate refund next year.
Maximise Your Tax Refund with the Right Approach
Want a bigger tax refund? You just need to plan ahead and take advantage of all the tax breaks available. Here are some simple ways to increase your refund and keep more money in your pocket.
1. Adjust Your Tax Withholding (TFN Declaration or Withholding Variation)
In Australia, your employer uses your Tax File Number (TFN) Declaration to determine how much tax to withhold from your pay. You typically complete this form when you start a new job, but you can submit a new one any time your circumstances change (e.g. getting a second job, marriage, children, or a change in residency).
If too little tax is withheld, you may end up with a tax bill. If too much is withheld, you’ll receive a refund — but you've effectively given the government an interest-free loan.
To make sure your tax withholding is accurate:
✅ Use the ATO’s Tax Withheld Calculator: Calculate your withholding
✅ If your situation has changed, update your details with your employer by submitting a new TFN Declaration
✅ If you're eligible for specific deductions or want to reduce your tax withheld during the year, you can apply for a Withholding Variation (NAT 2036)
These steps help ensure the right amount of tax is withheld from your income throughout the year — reducing surprises at tax time.
2. Use Every Tax Credit You Can
Tax credits are great because they directly reduce how much tax you owe. Some credits can even give you money back! Some common offsets include:
Low Income Tax Offset (LITO)
Private health insurance rebate
Zone and remote area offsets
Seniors and pensioners tax offset (SAPTO)
Check your eligibility each year, as income thresholds and rules may change.
3. Claim All Possible Deductions
Deductions reduce your taxable income, which means you pay less in taxes. Some common deductions include
Work-related expenses (e.g. uniforms, travel, tools, home office)
Donations to registered charities
Self-education expenses
Interest on investments
Tax agent fees
Keep detailed records and receipts to support your claims — the ATO may ask for evidence.
4. Consider Extra Super Contributions
Making personal concessional contributions to your super (within the annual cap) can reduce your taxable income. These are generally taxed at 15% in your fund rather than your marginal rate. To claim a deduction, lodge a notice of intent with your super fund before lodging your tax return.
5. Deduct Work-Related Expenses If You’re Self-Employed
If you run your own business or freelance under an ABN, you can claim a range of tax-deductible expenses that are directly related to earning your income. Common deductible expenses include:
✅ Home office expenses (electricity, internet, depreciation of equipment)
✅ Phone and internet costs (business portion only)
✅ Travel expenses (flights, accommodation, meals for overnight business travel)
✅ Vehicle expenses, using either:
Cents per kilometre method (up to 5,000 km per year)
Logbook method (claim actual business-use % of expenses)
✅ Tools, equipment, and software
✅ Accounting fees, insurance, marketing, and training
To claim these, the expenses must be:
Directly related to your business or income-generating activity
Not private or domestic in nature (e.g. general home utilities can't be claimed in full)
Properly documented with receipts or substantiation (e.g. a logbook, invoices)
Good recordkeeping is essential. The ATO may request evidence to support your deductions, especially if they’re large or unusual.
6. Lodge Your Tax Return Early
Filing your tax return as soon as you're ready can come with several benefits:
✅ Faster refunds: If you're due a refund, lodging early (after all your income info has been pre-filled) means you'll likely receive it sooner — especially if you lodge electronically and choose direct deposit.
✅ Time to fix errors: Early lodgement gives you more breathing room to fix mistakes or chase missing info before the 31 October deadline (or later if using a registered tax agent).
✅ Better cash flow planning: If you have a tax bill, knowing early gives you more time to plan for payment — especially if you're a sole trader or investor with no PAYG withholding.
✅ Peace of mind: Getting it done early reduces the stress of last-minute tax season and helps avoid penalties for late lodgement.
💡 Just make sure all your income (like bank interest, dividends, PAYG summaries, and private health insurance info) has been pre-filled by the ATO before you lodge — usually by late July.
Additional Tax Tips for Business Owners and the Self-Employed
If you run a business or earn income under an ABN, your tax refund may be lower because no tax is withheld automatically. Here’s how to stay on top of your obligations and improve your tax outcome.
1. Understand PAYG Instalments
PAYG instalments are prepayments of income tax based on your previous year’s income. If you're in the PAYG system:
Review your instalment amount each quarter
Use the ATO portal to vary it if your income changes
Track your actual income so your tax payments are accurate
Underpaying PAYG instalments may leave you with a bill. Overpaying may result in a refund.
2. Use the Instant Asset Write-Off (if available)
Check the current ATO guidance on instant asset write-off thresholds. These rules may allow you to claim the full cost of business assets in the year they’re purchased and used.
3. Consider Prepaying Expenses
If you're eligible, you may be able to claim deductions this financial year for prepaid expenses (e.g. rent, insurance, or subscriptions), provided the service period is 12 months or less.
4. Keep Business and Personal Finances Separate
Using a dedicated business bank account makes it easier to identify income and deductible expenses — and helps you stay audit-ready.
Conclusion
A low tax refund can happen for many reasons, like errors in your tax return, missing deductions, or not enough tax being withheld from your pay. At HelloLedger, we help our clients understand their tax situation and take the right steps to improve their refund. By reviewing your tax return carefully and adjusting your tax withholding, you can avoid surprises and keep more of your hard-earned money.
We believe in staying on top of your finances all year round. Keeping good records, staying informed about tax laws, and making smart financial choices can make a big difference. If you're unsure about your tax return, our team is here to help.
👉 Don’t wait until tax season—get ahead now! Contact us today, and let us handle the hard work so you can focus on what matters most. Let’s maximise your refund together!
Comments