The best time to do your tax return is generally “sooner, not later”, but the reasons and details depend whether you have a refund coming, or you owe money to the ATO.
PART ONE:
What’s the best time to do your tax return… IF you expect a tax refund?
If you will get a tax refund (like over 80 per cent of Australians), then ask yourself,
Why is my hard-earned cash still in the pockets of the ATO?”
The average tax refund is over $2000. There is a lot you can do with that money, so, lodge your tax return!
Basically, if you expect a tax refund then the best time to do your tax return is definitely: “Now.”
Four awesome things to do with your tax refund
1. Destroy those debts
Not surprisingly, a large percentage of people put their tax refund towards debts, bills and credit cards. It’s good thinking! If debts are an issue for you, then it’s best to smash the debts whenever you receive some extra money. This includes cash from other sources like inheritances, winnings or other unexpected money that joyfully arrives at your bank account.
It’s not fun paying off debts but it is great for your stress levels. The sense of achievement you feel as you see that debt go down and down quickly replaces the worry. And later, when you get extra money AND your debts are under control – that’s when you can start to have some fun with your money.
2. Pay down the mortgage
Another popular option with taxpayers is to put their refund on their mortgage. For the money savvy, this is a great way to do two things:
- The percentage of income that Aussies pay on our mortgages each year ranges between 21% and 39%, depending on where you live. (Obviously, Sydney-ites cop the larger end of that.) The faster you pay down your mortgage, the sooner you own your house outright. This means the considerable sum of money set aside for the mortgage annually can now be put towards other big ticket things. Retirement, investments, that Maserati you have always wanted or the trip around the world you’ve longed for all your life, the choice is yours.
- The other (rather brilliant) benefit of paying extra money onto your mortgage is that it’s legally squirrelled away from the tax man. The interest earned on money stashed in a savings account increases your taxable income each year, which means you pay more tax. But money that reduces your mortgage or added to a mortgage offset means you’ve reduced the interest you pay to the bank.
3. Re-vamp your pad
Investing your refund in renovating costs is also a popular choice, even more so since the enormous rise in popularity of renovation shows. Renovating is usually a solid investment. Whether it’s a quick room makeover or something more substantial. As long as you do it right and don’t suddenly consider yourself a master renovator because you’re addicted to The Block. It’s a great way to keep your home in line with comparable property values.
The one BIG ‘must do’ when it comes to renovating is: Hire a professional. Especially when it comes to things like plumbing, electrical work and construction. It may cost you more than your mate Dave but not using licensed tradies means NO insurance payout, should anything happen that’s related to the work they did on your home. PLUS it’s much harder to have work put right if it’s not up to standard.
Spend your money wisely, kitchen and bathroom renovations generally add the most value to your home but obviously cost the most. If neither are on the current finance agenda, smaller jobs like painting, sprucing up your entertaining area, garden landscaping or new flooring will also help boost the appeal of your home and often, your equity too.
4. Spoil yourself
And then come the fun squad; those of us who choose to reward ourselves with a holiday, a new ‘toy’ or even a fluffy, drooling addition to the family.
And why not; if you don’t have unmanageable debts it’s actually very good for your sense of well-being to treat yourself and your family from time to time. After all we are not just on this earth to work and worry!
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PART TWO:
If I owe money to the ATO, when is the best time to do my tax return?
If you owe the ATO money, prioritise getting your taxes organised and lodged, asap.”
An ATO debt is referred to as a ‘Payable’. Like any other debts, an ATO debt will never just go away. No matter how hard you ignore it, it will keep growing.
The ATO can slap interest charges and extra penalties on overdue tax payments. If you lodge a return sooner than later, it’s generally the best plan. Let’s look at some of the details that apply to you if you’ve got an ATO debt or “payable”.
Four things to know if you owe money to the ATO:
1. Are You Just Late – or Are You Avoiding a Tax Problem?
Are you are simply a bit late to lodge your payable tax return? Or, are you actually avoiding it?
The ATO are not scary monsters. A slightly late tax return won’t be the end of the world, IF you pay heed to their wagging fingers and get it lodged as soon as you realise it’s late.
Avoidance on the other hand is a completely different ball game. Start ignoring a tax problem and you WILL end up in hot water. The likelihood of hefty interest charges and penalties can’t be ignored. In some cases, continued evasion leads to court cases against you with, yes you guessed it, more costs and fines.
What’s worse, if you establish a bad reputation with the ATO, guess what happens in future?
This: You are much more likely to be audited. And the ATO will refuse your future requests for payment plans or deadline extensions.
So don’t be a silly galah. If you’re avoiding a tax return because you owe money, a time bomb with your name on it IS ticking down!
2. A tax agent can help to extend your tax deadline
If you’re registered with a tax agent you can request that they apply for an extension for you. The typical deadline extension for lodging your return is 15 May. This gives you more time to get the money together if you can’t readily to pay off your debt. An extension cannot be guaranteed (and if you’ve been bad about ATO debts before, don’t expect any more extensions).
To apply for a tax deadline extension, you must register with a tax agent like Etax – BEFORE 31 October.
3. Your tax agent can negotiate an ATO payment plan for you
Can’t afford to pay your tax debt?
Don’t panic.
Your tax agent can ask the ATO to agree on a reasonable payment plan. Your tax agent will negotiate on your behalf, taking away some of the stress, and settle with the ATO on an affordable monthly payment that you can manage.
It’s important to understand that the ATO will not allow payment plans for people who have prior “bad debts” with the ATO. If you get a payment plan, you must keep up with the payments.
4. The most important reason to sort out your ATO debt: Stop the Stress
Having an ATO debt lurking in the back of your mind is not happy or healthy.
If you owe the ATO money, we can’t express strongly enough how important it is to bite the bullet and stop hiding from the ATO. Putting everything else aside for a moment, the teh biggest concern is stress. The stress of a debt problem is truly detrimental to your life. Stress can put a strain on your job, your family and your health Even when you think you are coping with it, sometimes you’re not.
Once in a while, someone tells us we are wrong about this point. They say, “It’s best to pay the ATO at the last possible minute and earn interest on that money in the meanwhile.” We disagree. It’s generally just not worth the headache, over a few dollars of interest money. For most people it’s more constructive to get that tax debt sorted rather than let it lurk in the back of their minds for months or years.
The ATO doesn’t want to destroy your life. They are real people. Their job is to collect government revenue (taxes) and we all pay our share. As long as the lines of communication are open with the ATO, the ATO will listen when you make the effort to do the right thing.
Let a tax agent handle negotiation for you. That can be a much less stressful way to tackle it. At Etax most of our clients get a tax refund. But we also help thousands of taxpayers to arrange ATO payment plans and get on top of a tax problem.
