Overpaying Income Tax in Australia

[Robin’s Emigrating]

Has anyone had a strange experience with paying too much income tax here in Australia when they’ve started a new job? In my last employer in the UK, the payroll department smoothed out your tax across the year. So if I had a payment delayed for some reason, it would still be taxed with my total expected renumeration for the year in mind.

With my new employer here in Australia, on my first month my start date missed the payroll date by a few days, so I ended up receiving about 1.8 months worth of salary in following month’s pay check. However, it was taxed as if I would receive that amount every month, meaning I paid considerably more tax than if I had been paid each month separately!

The response I’ve received so far seems to be that this is how it works in Australia (you’re taxed based on each individual month) and you can sort it out come tax return time. Is that right? We have no immediate financial need for the money, I think it just frustrates me that due to internal payroll timing mechanism you should have to forego quite a considerable lump of money until around a year away.

 

[Marisawright]

Yes, this is how it works in Australia, I'm afraid.  

[welljock]

That's how it worked in the UK too, in my experience. Your annual tax free allowance was divided by 12 and applied equally every month

[Parley]

I always liked it as a new worker in my early 20s.

Lets face it if you get an extra $20 in your pay you just spend it on rubbish. But it was very nice to get a tax refund cheque for $1000.

Edited August 18, 2021 by Parley

[Paul1Perth]

5 hours ago, Robin’s Emigrating said:

Has anyone had a strange experience with paying too much income tax here in Australia when they’ve started a new job? In my last employer in the UK, the payroll department smoothed out your tax across the year. So if I had a payment delayed for some reason, it would still be taxed with my total expected renumeration for the year in mind.

With my new employer here in Australia, on my first month my start date missed the payroll date by a few days, so I ended up receiving about 1.8 months worth of salary in following month’s pay check. However, it was taxed as if I would receive that amount every month, meaning I paid considerably more tax than if I had been paid each month separately!

The response I’ve received so far seems to be that this is how it works in Australia (you’re taxed based on each individual month) and you can sort it out come tax return time. Is that right? We have no immediate financial need for the money, I think it just frustrates me that due to internal payroll timing mechanism you should have to forego quite a considerable lump of money until around a year away.

 

When you get your tax return you might change you're mind. It's like enforced saving, you end up with money that you usually just squander away.

Get a good accountant too, tax deductable and you might be amazed on what you can claim for.

[Robin’s Emigrating]

5 hours ago, welljock said:

That's how it worked in the UK too, in my experience. Your annual tax free allowance was divided by 12 and applied equally every month

Interesting. I had a different experience at my last employer who worked with me to keep me tax amount relative only to my expected salary at year end. I also worked with HMRC to edit tax codes which then flowed back into my tax amounts. There’s also a mechanism to claim back overpaid tax back home prior to year end, although I’ve never exercised it myself.

[Robin’s Emigrating]

1 hour ago, Paul1Perth said:

When you get your tax return you might change you're mind. It's like enforced saving, you end up with money that you usually just squander away.

Get a good accountant too, tax deductable and you might be amazed on what you can claim for.

Always nice to get a check back, however  if I had the money it would be going into a set of investments and earning interest, so would prefer to have it.

[rammygirl]

You can ask for a review, same with the quarterly PAYG if self employed. If you can prove ongoing income is less than they have predicted.  This can happen after a bonus payment for example. If you can’t work out how then get an accountant. 

[can1983]

19 hours ago, Robin’s Emigrating said:

Always nice to get a check back, however  if I had the money it would be going into a set of investments and earning interest, so would prefer to have it.

Yes its a frustrating thing but i think the ATO do it intentionally so that everyone goes out and buys TVs in July/August and stimulates the retail sector 

[Ken]

4 hours ago, can1983 said:

Yes its a frustrating thing but i think the ATO do it intentionally so that everyone goes out and buys TVs in July/August and stimulates the retail sector 

They do it intentionally to make sure people do their tax returns. People don't like doing tax returns especially when it means they have to pay more tax but with the system rigged to ensure most people get refunds (especially this year due to the extension of the LMITO plus the change to withholding rates only occurring in October) people actually want to do their tax returns.

PS: PM me if you haven't done your tax return yet and need professional help with it.

Edited August 19, 2021 by Ken

[Robin’s Emigrating]

Thanks for the clarifications folks.

[can1983]

15 hours ago, Ken said:

They do it intentionally to make sure people do their tax returns. People don't like doing tax returns especially when it means they have to pay more tax but with the system rigged to ensure most people get refunds (especially this year due to the extension of the LMITO plus the change to withholding rates only occurring in October) people actually want to do their tax returns.

PS: PM me if you haven't done your tax return yet and need professional help with it.

Nope do ours ourselves, when you work PAYG jobs with only a couple of small investments to be honest its not worth paying to have it done. Accountants (in my experience) always say they can recover their fee by identifying deductions you've missed then say you can only claim $55 for laundering your uniform so long as it has a logo in it! You then get presented with a $200 bill (but you can claim $45 back in tax ;))

I've nothing against accountants, when I had my own business I wouldn't have dreamed of doing it without one but for PAYG jobs its simple stuff

[Marisawright]

9 minutes ago, can1983 said:

Nope do ours ourselves, when you work PAYG jobs with only a couple of small investments to be honest its not worth paying to have it done.

That's generally true, HOWEVER I'd say to everyone, when you first arrive in Australia, get a professional to do your first couple of tax returns.   If you're in a PAYG job, there isn't a huge amount you can claim for, but all the more reason to be sure you haven't missed anything.  When you first arrive, you don't know the rules and may miss an opportunity through ignorance.

A good accountant won't just do your tax return, they'll give you advice on how to set things up for the next tax year so you pay less tax, e.g. whether it's worth salary sacrficing for some things, whether a novated lease would be worth it in your circumstances, income protection insurance, working from home claims, etc.  Once you've been through that process a couple of times, you'll have picked up a good understanding of the Australian tax system and will be able to go it alone.

Edited August 19, 2021 by Marisawright

[can1983]

7 minutes ago, Marisawright said:

That's generally true, HOWEVER I'd say to everyone, when you first arrive in Australia, get a professional to do your first couple of tax returns.   If you're in a PAYG job, there isn't a huge amount you can claim for, but all the more reason to be sure you haven't missed anything.  When you first arrive, you don't know the rules and may miss an opportunity through ignorance.

A good accountant won't just do your tax return, they'll give you advice on how to set things up for the next tax year so you pay less tax, e.g. whether it's worth salary sacrficing for some things, whether a novated lease would be worth it in your circumstances, income protection insurance, working from home claims, etc.  Once you've been through that process a couple of times, you'll have picked up a good understanding of the Australian tax system and will be able to go it alone.

Yeah but again when you are PAYG like me, work 2 minutes drive from work, don't wear a uniform with an emblem on it, need glasses for lots of things not just work what can you claim??? Working from home allowances are easy to follow and business related mileage is also easy to follow

The salary sacrifice rules might be a little worthy of some advice for some people I suppose.

Where Accountants are great is for, say, a tradie. Shall I be sole trader or PTY should I buy or lease a vehicle, how to claim the most deductions etc etc

[Marisawright]

1 hour ago, can1983 said:

Yeah but again when you are PAYG like me, work 2 minutes drive from work, don't wear a uniform with an emblem on it, need glasses for lots of things not just work what can you claim??? Working from home allowances are easy to follow and business related mileage is also easy to follow

Income protection insurance is one example - I had it but would probably never have noticed it was claimable if a tax agent hadn't asked me the question.  No idea what other examples there are, I've been retired for a while.   Anyhow, I'm just saying that someone who's new to the country and has no idea how the tax system works, would be sensible to get a professional the first time round, to be on the safe side.

[Alan Collett]

https://www.ato.gov.au/forms/payg-withholding-variation-application/

To the OP - maybe a PAYG variation will do the trick?

Best regards.

[Alan Collett]

On 18/08/2021 at 12:34, welljock said:

That's how it worked in the UK too, in my experience. Your annual tax free allowance was divided by 12 and applied equally every month

... save that in the UK most are taxed under PAYE on a cumulative basis, which recognises any unused personal allowance from earlier months.

So if you start work in (say) month 8 of the UK tax year you'll have 8/12 of the personal allowance made available to you when you are paid in month 8.

Best regards.

[Ken]

6 hours ago, Alan Collett said:

... save that in the UK most are taxed under PAYE on a cumulative basis, which recognises any unused personal allowance from earlier months.

So if you start work in (say) month 8 of the UK tax year you'll have 8/12 of the personal allowance made available to you when you are paid in month 8.

Best regards.

Not if they tax you on a "Week 1 / Month 1 basis" which happens frequently to employees who start work in month 8 of the UK tax year without a P45 to show what they had earned in the first 7 months of the year. In fact in those circumstances I think the employer has to use the Week 1 / Month 1 basis (although it's been a while since I've done UK PAYE) so putting those UK tax payers on the same footing as Australians.

Edited September 1, 2021 by Ken

[Alan Collett]

6 minutes ago, Ken said:

Not if they tax you on a "Week 1 / Month 1 basis" which happens frequently to employees who start work in month 8 of the UK tax year without a P45 to show what they had earned in the first 7 months of the year. In fact in those circumstances I think the employer has to use the Week 1 / Month 1 basis (although it's been a while since I've done UK PAYE) so putting those UK tax payers on the same footing as Australians.

Yes, I'm aware of that Ken!

That's why I used the word "most" in my comment!

Best regards.