Though you may not be expecting a tax bill, having one turn up in your inbox does not have to be an unexplainable mystery. The Australian Tax Office may send you a tax bill after you have lodged your income tax return for a number of reasons.
You may receive a tax bill if:
- Your employer has not withheld enough tax from the payments that they have made to you as an employee (this often occurs where you change jobs during the year).
- You are a sole trader who hasn’t made enough tax payments to the ATO throughout the year (also known as PAYG instalments).
- You receive other income where no tax was withheld (e.g. the money received from an investment property or dividends).
- A change in income affects your single or family income threshold and you need to pay the Medicare levy or Medicare levy surcharge (MLS).
- The amount of private health insurance rebate you receive changes or is too much.
How To Prevent A Tax Bill
If you earn income as an employee, your employer usually makes tax payments on your behalf throughout the year. Through these Pay As You Go withholding amounts, your annual tax obligations can be met and you generally will not have a tax bill waiting for you after lodgement.
However, if you earn income that does not have tax withheld or does not have enough tax withheld, you can prevent a tax bill by increasing tax withheld from payments, voluntary entry into PAYG instalments or tax prepayments.
If you know or can estimate that the annual tax bill you might receive won’t be covered by the amount of tax withheld through PAYG withholding, you can ask one or more of your payers to increase the amount of tax that they withhold. This is what is known as an upwards variation.
If your tax is not withheld when you receive payments from income earned as a sole trader or investments, you can voluntarily enter into PAYG instalments. This method of prepaying tax reduces your chances of having to pay a large amount of tax at the end of the income year. If you are in your first year of sole trading, this is a recommended practice to undertake.
Tax prepayments can be made at any time, and as often as needed to make tax management a bit easier for you. The ATO can hold the prepaid amounts made towards your expected bill unless you (or your agent) request a refund.
If something arises and you cannot pay your tax bill on time, you should speak with us as soon as possible so that we can make arrangements on your behalf.