Why is My Tax Refund So Low?
- Leonie Martin
- Dec 19, 2025
- 5 min read
If you’ve recently lodged your tax return and found yourself asking “why is my tax refund so low?”, you’re not alone. Every year, many Australians are surprised and disappointed when their tax refund is lower than expected, especially if they earned more money than last year.
Questions like “why is my tax return so low this year?”, “why is my tax refund smaller when I made more money?”, or even “has my tax refund been withheld?” are increasingly common.
The reality is that a low tax refund doesn’t necessarily mean something went wrong. In many cases, it reflects changes in tax rules, income levels, withholding amounts, or deductions claimed.
In this guide, we’ll explain the most common low tax refund reasons, how Australia’s tax system affects refunds, and most importantly how to maximise your tax refund in future years.
How Tax Refunds Actually Work in Australia
Before diving into why your tax refund is low, it’s important to understand what a tax refund really is.
A tax refund is not a bonus it’s simply the difference between:
the amount of tax withheld from your income during the year, and
the amount of tax you were legally required to pay.
If too much tax was withheld, you receive a refund. If too little was withheld, you may receive a small refund or even owe tax.
So if you’re wondering “why is my tax return so low?”, the answer usually lies in how closely your withheld tax matched your actual tax liability.
Top Reasons Why Your Tax Refund Is So Low
1. The End of Temporary Tax Offsets
One of the biggest reasons Australians are seeing lower tax refunds this year is the removal of temporary tax offsets, such as the Low and Middle Income Tax Offset (LMITO).
For several years, LMITO boosted refunds by up to thousands of dollars. Now that it has ended, many taxpayers are shocked to see their refund drop even though their income hasn’t changed.
This is often the single biggest explanation for people asking:
why is tax return so low this year?
why is my tax refund lower than last year?
2. Not Enough Tax Was Withheld
Another common reason for a low tax refund is insufficient tax withholding throughout the year.
This often happens if you:
changed jobs during the year,
worked multiple jobs without adjusting withholding,
earned casual, contract, or gig income,
received bonuses or commissions,
or worked overtime inconsistently.
When not enough tax is withheld, your refund will be small or nonexistent because you already received most of your income upfront.
3. You Earned More Money (But Paid More Tax)
Many people ask “why is my tax refund so low when I made more money?” The answer is simple: higher income usually means higher tax.
As your income increases:
more of your income may be taxed at higher marginal rates,
some tax offsets phase out or disappear,
deductions may make less impact overall.
Even if your salary increased, your refund can shrink if your employer didn’t withhold enough extra tax to match your higher income.
4. Fewer Deductions Claimed
If you claimed fewer deductions this year or missed some entirely your refund will likely be lower.
Commonly missed deductions include:
work-related expenses,
home office expenses,
self-education costs,
professional memberships,
tools, uniforms, or equipment,
charitable donations.
Without proper record-keeping, many taxpayers unintentionally under-claim, leading to a lower tax refund than expected.
5. Outstanding Government Debts
Sometimes your tax refund isn’t low — it’s been used to repay debts.
The ATO can automatically apply your refund to:
unpaid tax from previous years,
HELP/HECS student loan repayments,
Centrelink overpayments,
other government debts.
This can leave you thinking “my tax refund was withheld” when, in reality, it was offset against what you owed.
6. Low Income Doesn’t Always Mean a Big Refund
A common misconception is that low income guarantees a big tax refund. In fact, if you earned a low income and had minimal tax withheld, your refund may be small simply because you didn’t pay much tax in the first place.
Low-income earners may benefit from tax offsets, but those offsets don’t always translate into cash refunds they mainly reduce tax payable.
7. Errors or Missing Information
Even small mistakes can reduce your refund or delay payment, including:
incorrect income reporting,
missing deductions,
mismatches with ATO pre-filled data,
incorrect bank details.
If you’re thinking “why is my tax return so low?”, it’s worth double-checking that nothing was overlooked.
Why Is My Tax Return So Low This Year Compared to Last Year?
If your tax refund dropped significantly compared to last year, the most likely reasons are:
tax offsets have been removed,
your income increased,
fewer deductions were claimed,
withholding didn’t increase with your pay,
or you had debts offset against your refund.
In many cases, nothing has gone wrong the tax system has simply changed, or your circumstances have.
Is a Low Tax Refund Actually a Bad Thing?
Surprisingly, a low tax refund isn’t always bad.
A very large refund often means:
you paid too much tax during the year, and
the government held onto your money interest-free.
Ideally, your tax withholding should be close to your actual tax bill meaning a small refund or small amount payable.
That said, most people still prefer a refund, which leads to the next question…
How to Maximise Your Tax Refund
If you want a bigger tax refund next year, here are practical, legal ways to improve your outcome.
1. Review Your Tax Withholding
Ensure your employer is withholding the correct amount of tax, especially if:
you work more than one job,
your income has increased,
you receive bonuses or commissions.
Correct withholding prevents unpleasant surprises at tax time.
2. Keep Better Records All Year
The best way to maximise your tax refund is good record-keeping.
Keep receipts and logs for:
work-related expenses,
home office usage,
education and training,
donations,
investment expenses.
The more accurately you track expenses, the less likely you are to miss deductions.
3. Claim Every Deduction You’re Entitled To
Don’t assume small expenses don’t matter. Individually they may seem minor, but collectively they can significantly increase your refund.
If you’re unsure what you can claim, professional advice can often pay for itself.
4. Use Super Contributions Strategically
Making concessional super contributions can reduce your taxable income and increase your tax refund — while also boosting your retirement savings.
Just be mindful of contribution caps and timing.
5. Don’t Forget Tax Offsets
Even though some offsets have ended, others still apply depending on your circumstances, including:
Low Income Tax Offset,
private health insurance rebates,
dependent or family-related offsets.
Missing offsets means missing money.
6. Lodge Carefully — Not Just Quickly
If you’re thinking “I need my tax refund now”, it’s tempting to rush your return. But rushing increases the risk of mistakes and missed claims.
Taking time to lodge accurately often results in a better outcome than lodging fast.
When to Get Professional Help
If you consistently ask:
why is my tax refund so low?
why is my tax return lower every year?
how can I maximise my tax refund?
…it may be time to speak with a tax professional.
An accountant can:
identify missed deductions,
ensure compliance with ATO rules,
optimise your tax position year-round,
help you plan for better refunds in future years.
Final Thoughts
If you’re wondering why your tax refund is so low, the answer usually lies in changes to tax offsets, withholding, income levels, or deductions not a mistake by the ATO.
Understanding the real reasons behind a low tax refund puts you in control. With better planning, accurate records, and smart tax strategies, you can avoid surprises and maximise your tax refund in the years ahead.
