Harsh income tax withholding variation!

[poppy]

Like many people here due to the falling interest rates I needed to lodge a new Income Tax Withholding Variation.

The letter has come back from the ATO and the withholding rate is a lot more than I think it should be (at least 5-7% more) according to my calculations - unless of course interest rates drop further. Maybe the ATO knows something I don't?

Has anyone had any experience with getting their withholding rate changed or at least getting a logical explanation from the ATO as to how and why they calculated the rate?

It seems to me that the ATO add a buffer to the withholding rate to ensure that at the end of the tax year they will still have extra money in their pockets no matter what. Is this the case? If so there is no point adding any buffer to the ITWV ourselves to ensure we don't owe tax at the end of the year.

 

[AshleyS]

Hi Poppy,

I did mine after all but the last 1% drop. My tax rate went from 30% initially down to 13% and then after all the rate cuts, back up to 23%. These figures probably won't help you but in my case it went up 10%.

I didn't bother calculating what it should have been so I don't really know if it was accurate or not.

You can challenge their decision - but given that the new ITWV eform can be completed from May 1st - wouldn't worry about it.

 

[greysuit]

Poppy,

Don't worry too much. If you're actually entitled to it, you'll get that cash eventually once your tax is done. That said, the tax office are always going to be conservative and it's worthwhile for you to act the same so as to make sure you don't end up with a fine - or worse, denial of future variations. 5% difference is fair enough.

But, you can always put in a new variation if you like. You've still got a week.

Cheers.

 

[poppy]

Spoke to the tax office today. Apparently, there is no right to object to the percentage applied. You can only change the estimated taxable income a bit and hope that they adjust the percentage applied.

So, if for example you know you need to pay 10% tax per pay to meet your tax obligations on your expected income, the ATO can decide to apply a rate of 15%, 30%, or 100% "just to be safe" and there is nothing you can do about that.

It's only a few months till the end of financial year so I'll just live with it, but it is irritating. I won't be so conservative for next year's application - I'll include expected amounts for repairs etc - and just vary again before the deadline if required.

5% difference is fair enough.

If it was 5% added to the estimated taxable income over a year I could understand it but I am talking about for example 20% tax to 25% tax - this assumes quite a large error in your estimated taxable income. Given that the year is almost up the estimated income is going to be more accurate too.

 

[Ms Jade]

So, if for example you know you need to pay 10% tax per pay to meet your tax obligations on your expected income, the ATO can decide to apply a rate of 15%, 30%, or 100% "just to be safe" and there is nothing you can do about that.

I am wondering whether the ATO has either recently introduced this or they have just added a bigger buffer. I put in a new variation from March and it's come back about 5% more than I calculated too. I don't remember this from previous years' variations...