Backpackers out of pocket due to Tax Office mistake
This year individual taxpayers experience the significant tax free threshold increase from $6,000 to $18,200. However significant to the taxpayer at the end of this financial year, it may not be obvious to some (certainly not the Tax Office) that the amendment requires a new formula for calculating the part-year tax-free threshold.
Backpackers Buddy specialises in tax returns for travellers- we lodge a high volume of part year returns for working holiday makers when they cease working in Australia. The Commissioner has failed to apply the correct formula for the calculation of the part-year tax-free threshold resulting in a significantly lower refund for the tax payers.
It appears that the processes implemented by the Tax Office to perform its primary function, i.e. assessing tax liabilities, have incorrectly updated their systems in response to legislative development in this area. This raises significant concerns for all taxpayers. If the Tax Office does not keep abreast of legislative changes, how can taxpayers have the confidence that they are paying their fair share of tax, especially when the system errors result in overstated tax liabilities? If the Tax Office cannot get it right what chance so the tax payers have.
Our Example: John lodged his 2013 tax return in September 2012 claiming a part-year tax-free threshold for the three months of the year. Backpackers Buddy estimated John?s tax liability to be $528. However, the notice of assessment issued by the Tax Office stated that John had a tax liability of $2,446.
The difference of $1,918 is due to the Tax Office applying the incorrect formula to calculate our client?s part-year tax-free threshold. The table below explains the difference:
|Part-year tax-free threshold||Tax benefit (19%)|
|Tax Office||$18,200 / 12 x 3 = ? $4,549??? = WRONG||
$? ? 865
|Backpackers Buddy||$13,464 + ($4,736 / ? 12 x 3) = $14,648??? = LAW||
|Difference in tax ? benefit||ATO VS LAW||
Backpackers Buddy has lodged an objection to the above assessment and are awaiting the Tax Office?s response. If you or your clients are in a similar situation we would be grateful if you could share your experience with us.
This incorrect calculation is leading to Backpackers getting smaller refunds, which is giving them less money to spend here in Australia- something which affects our whole industry.