Have you received a huge tax bill and are being threatened to pay it? You might not need to.
With #robodebt horrors alive in people's minds and with many workers and business owners struggling in the COVID-based economic climate, the last thing anyone needs is a colossal tax bill through the mail (especially right before Christmas). But the Australian Tax Office (ATO) is sending them out anyway - without any explanation. This article details what happened to me and how I got out of it in the hope that other people who are struggling can address their own situations.
Last year I was primarily a freelance writer who invoiced using a Sole Trader ABN. This year, I'm now full-time office worker with minimal freelance work on the side.
At the end of the last financial year, my accountant submitted my tax return which dealt with earnings and deductions from multiple sources.
I ended up with a significant end of year tax bill (not unexpected) that I paid in September.
A few days later I received a tax bill - with no other explanation - through the post for a similar amount and naturally assumed that I could ignore it as I'd already paid it.
A few days ago I received a warning letter saying that the bill was overdue.
It turned out that the ATO had seen my freelance work from the year before and automatically transferred my PAYG tax reporting from annual to quarterly, without telling me (I'd broken through an invisible threshold). They'd also assumed I was earning a similar amount this year. They'd also ignored the deductions I had last year and based the tax figure on gross earnings. All without telling me. If I'd been struggling with massive wage reductions due to COVID I'd be panicking by now and very very stressed and anxious.
I asked my accountant what was going on and they said that, as it was overdue, I'd likely have to pay the bill and claim the money back the following quarter. However, the total amount owed in the bill was likely more than I'd earn as a Sole Trader for the entire year!
How to avoid the ATO's PAYG tax bill
My accountant had no visibility or ability to address this issue on the ATO's site.
Fortunately, Reddit's /r/australia community was quick to help. Here's how to fix the issue...
1) Log into MyGov and check your messages.
2) Click on the PAYG installment notice. You will be transferred to the ATO.
3) Here you can revise down the automated figures - saying how much you'll actually earn compared to the ATO's automated estimates. You can give a reason for the discrepancy (Mine was a change in business operations). You then provide a declaration that what you said is true, and suddenly the bill reduces to what you input - in my case, zero.
It's not clear whether I'll have to do this each quarter from now on. This article will be updated once clarification has been sought from the ATO.