With tax time fast approaching I want to take this opportunity to talk about tax debt. Keeping up to date with taxes is a chore that haunts thousands of Australians but it is absolutely essential and beneficial to do so.
What are Taxes Used for?
The Australian Government raises revenue through taxes. Each financial year a new budget is released to inform Australian citizens exactly how their tax dollars will be spent. Taxes are used for welfare, health, education, defence, roads and infrastructure and a number of other public services.
Do I Need to do My Taxes?
There will come a time in your life when you need to apply for a Tax File Number (TFN). This is usually when you get your first job. A TFN is necessary for paid employment in Australia. You also need a TFN if you want to apply for an ABN or Centrelink Benefits. If you have a TFN, you will need to lodge a Tax Return at the end of every financial year (July-October). It doesn't matter if you haven't been in paid employment, you will still need to lodge a tax return if you are only receiving benefits.
Will I Get Money Back at Tax Time?
Each time you get paid, your employer will deduct some tax through the PAYG (Pay As You Go) System. Sometimes you'll pay too much tax and will be entitled to a refund. Other times, you might not pay enough and will incur a Tax debt. Expenses you pay for yourself which are required for work, such as uniforms or travel can be claimed back at tax time. These expenses essentially reduce your income and therefore make your taxes less. By claiming these expenses back, you can get a tax refund.
You might need to pay more tax if you have been earning high interest on money you have at the bank, reach the compulsory threshold for your HECS/HELP debt during the year, or a number of other reasons.
What do I do with a Tax Debt?
If it turns out you owe money in a Tax Debt you will receive a letter explaining the amount you owe and the due date for payment. If the debt is not paid within a certain amount of time, it will begin to accumulate interest and, like all debt, it can quickly spiral out of control.
What if I Can't Pay My Tax Debt?
If you know you will struggle to repay the debt before the deadline you should call the Tax Office and explain your situation. You might be able to arrange a repayment schedule.
A Tax Debt is the Least of My Problems
If a large tax debt is only one of many debts you are struggling to repay you might need to look at a more effective solution. If all your taxes are up-to-date you can include your tax Debt in a Part 9 Debt Agreement. A Part 9 debt agreement is an option available under the Bankruptcy Act which allows you to negotiate the amount of debt you owe and pause the interest and fees. This leaves you with one, affordable regular repayment over 5 years and you are guaranteed to pay off your debt. A Part 9 Debt Agreement is an act of insolvency so it will be noted on your credit file for 5 years. In that time it will be difficult to secure more loans, credit cards or lines of credit. Once the agreement is over however, your credit file tends to recover quite quickly.
Dealing with a Tax Debt
If you have tried to talk to the ATO about your debt and are still struggling to make repayments or if your tax debt is only contributing to a greater debt problem, give Revive Financial a call. The experienced professionals at Revive Financial will be able to go through your situation and suggest a positive solution to your debt. We help hundreds of Aussies each day who are struggling with their finances and we can help you too.
For more information on budgeting and how it can help get your finances back on track, check out our budgeting page.