Australia’s tax system is strict. If you live and work in Australia, you naturally need to comply with its tax rules — pay and declare your tax properly, and claim the refund you’re entitled to. Recently, the Australian Taxation Office announced it would investigate fraudulent refund activity involving 40,000 Australians. With the annual Australian tax refund season just around the corner, this article walks through the things you need to watch out for when lodging tax returns and claiming refunds in Australia.
Why fraudulent refunds carry serious consequences
Case 1:
The Australian Taxation Office recently said it would investigate a series of tax fraud activities involving 40,000 Australians. This investigation, codenamed “Operation Protego”, is being carried out jointly with banks and law enforcement agencies. The fraudulent activity involved a total of AUD 850 million and caused significant losses to the ATO. The individuals involved are understood to have created fake businesses and registered ABNs to carry out sham economic activity, then claimed GST refunds on that basis. The ATO has said it will crack down hard on this kind of fraud.
Case 2:
Several years ago in Australia, a farm owner defrauded the ATO of as much as AUD 820,000 in refunds. The farmer, who was a director of a livestock procurement company, used the company’s business activity statements to fraudulently claim large GST refunds without providing any tax invoices, and was ultimately sentenced to prison.
These two cases serve as a warning that fraudulent refunds are never acceptable — don’t be tempted by the money. So as an individual earning taxable income in Australia, what should you pay attention to when lodging tax returns and claiming refunds?
1. How is the Australian financial year calculated?
Unlike in China, Australia’s Financial Year runs from 1 July each year to 30 June the following year, not from 1 January to 31 December. So your annual personal income, how much tax you should pay, and how much refund you’re entitled to are all calculated against the Australian financial year — in other words, whatever income you earned and tax was withheld on during a financial year, you can claim a refund on at the end of that financial year.
2. The importance of applying for a tax file number
If you’re preparing to work in Australia, it’s essential to apply for a Tax File Number (TFN). A TFN is a confidential personal identifier, and you need to make sure you don’t disclose it casually — except to your employer for payroll tax withholding purposes, and similar legitimate situations.
You should apply for a TFN either before you start working or as soon as you’ve started, otherwise you’ll end up paying more tax. Without one, you also won’t be able to claim government benefits, lodge your tax return electronically, or obtain an Australian Business Number (ABN).
When you start a job, your employer will ask you to complete a Tax file number declaration, or ask for your TFN and personal details, which are used to calculate the tax you need to pay. Applying for a TFN is free, and you apply through the Australian Taxation Office (ATO) website or via official ATO forms. You can apply using the link below:
https://www.ato.gov.au/individuals/tax-file-number/apply-for-a-tfn/
3. Lodging your tax return
Under Australian tax law, Australian tax residents are required to declare their personal income tax to the Australian Taxation Office (ATO), regardless of whether the income was earned inside or outside Australia. If your home is in Australia, or you’ve lived in Australia for more than 183 days, you will be treated as an Australian tax resident and must fulfil your tax obligations.
So it’s not just Australian citizens and PR holders who have tax obligations — international students are tax residents too. When applying for a TFN, students will encounter the question of whether they are a “Resident for Tax Purposes”. This is asking whether you are an Australian tax resident, and in general the answer should be “yes”.
Lodgement window: between 1 July and 31 October each year, you need to lodge your personal income tax return for the previous financial year with the ATO. Once lodged, the ATO will let you know whether you need to pay additional tax, or how much refund you’ll receive.
4. What can be claimed as deductions on a personal tax return?
1. Home-office related expenses:
During this financial year, many people have worked from home for several months due to the pandemic. If you can demonstrate that your home-office expenses are directly related to your work or income, you can claim them as deductions.
2. Travel expenses:
In addition to ordinary commuting, if you travel temporarily for work, you can claim transport, accommodation and similar expenses as deductions.
3. Work-related self-education expenses:
If you undertake study or courses for work-related reasons, the associated costs may be deductible.
4. Work clothing expenses:
If your occupation requires you to purchase, rent or maintain specific clothing, footwear or headwear, the resulting expenses may be deductible.
5. Charitable donations:
If you’ve made donations of money or goods to charity, you must have a DGR receipt issued by the relevant charitable organisation in order to claim the deduction.
6. Work-related equipment expenses:
If you’ve purchased tools and equipment related to your work, these are deductible. You can claim up to AUD 300 in expenses.
5. Refunds
There are two ways to go about a personal refund. One is to file your own return directly using the My Tax software, which suits most ordinary low- to middle-income earners without complex investments or assets. These people can simply register a My Gov account, link it to the ATO, and then follow the online prompts to complete their refund.
The other is to engage a professional accountant to handle the refund, which suits those with higher incomes, their own companies, substantial property holdings, or significant investments. A professional accountant can help you minimise tax legally.
6. Tax-related penalties
Depending on severity, penalties under Australian tax law fall into the following two categories:
1. Where an individual or business intentionally under-reports income or over-claims expenses, the penalty is 75% of the shortfall of tax. If the taxpayer obstructs the audit, the penalty is increased to 90%. If the taxpayer voluntarily discloses and makes up the shortfall during the audit, the penalty is reduced to 60%. If the shortfall is paid and disclosed before the audit, the penalty is reduced to 15%.
2. Where an individual or business unintentionally under-reports income or over-claims expenses, the penalty is 25% of the shortfall of tax.
Final thoughts
As outlined above, whether you are a PR holder or a temporary visa holder in Australia, you have both a responsibility to declare and pay tax and a right to claim refunds. We therefore recommend that everyone declares and claims tax lawfully and reasonably — don’t try to exploit loopholes, and do enjoy the refund you’re rightfully entitled to.
