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Here’s Why You May Receive A Tax Bill, Even If You Weren’t Expecting One

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.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

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David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

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Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier