TAX NEWS - JUNE 2010

Australia Tax: Hold on tight to your tax refunds

Almost two-thirds of South Australians will bank this year's shrinking tax returns or use it to pay off debt, a new survey shows.

The latest report in the Bankwest Social Indicator Series forecasts the average SA tax refund is expected to fall by 3 per cent, to $2345, this financial year.

About 42 per cent of Australians expect a tax refund of less than $1000, while 5 per cent expect nothing.

An unlucky one in 10 also expects to have to repay tax this financial year, the report shows.

While 42 per cent of South Australians will use their tax refund to pay off debt, 18 per cent will make a big purchase, such as entertainment goods or a holiday, and 29 per cent will bank it.

Bankwest retail chief executive Vittoria Shortt said as well as splurging on luxury items, such as televisions, people would use their tax return as a de facto savings plan.

"People are being far more cautious with their returns than in previous years and using their refund to save or reduce debt," she said. `One of the big surprises . . . is the fact 14 per cent of taxpayers intentionally use their tax refund to force them to save.

"This would seem to underline the problem many in the community are facing in getting a satisfactory savings strategy together.

"We often hear of how many people consider a mortgage to be enforced savings. This is the first time we've heard of people using the tax system to try to manage their savings."

If the Federal Government's proposed tax reforms, announced in the Henry taxation review released last month go through, this year and the next could be the last for the traditional tax return.

Instead, people who elect to will be able to claim a standard $500 tax deduction in 2011-12, bypassing the need to provide detailed records for work deductions. The standard tax deduction would rise to $1000 the following year.

While the standard deduction would make tax-time simpler, accountants believe most people are eligible to claim more than the $1000 standard deduction.

In 2007-08 - the latest year for which statistics are available from the Australian Taxation Office - 17.7 per cent of personal tax returns were lodged using the online e-tax system. About 14.8 million returns were lodged, up 6.7 per cent, with 85.2 per cent of those for individuals, as opposed to trusts or other entities.