Preparing and lodging your tax return is understood to be a once in a year exercise; however, in today’s world, like a phantom thread, the lingering sensation of compiling documents and being interviewed for your return never seems to go away!

With the increasing use of data matching programs by the ATO, an increasing number of us are discovering that the return that was lodged and supposedly validated with a notice of assessment, is in fact deficient of information and needs to be revisited.

Looking at the recent bout of amended assessments we have received, the main phantom threads of the tax system, apart from disposal of assets, would appear to be:

1. PAYG instalments; and
2. Medicare levy surcharge/private health insurance offset reduction

PAYG Instalments

Probably the most detested invention of the ATO, PAYG instalments are raised to compel taxpayers to pay their income tax in advance of their current year return.

They are caused by you earning assessable income not taxed at source, such as interest, dividends and business profits, and for which there is a likelihood that such income will continue to be earned going forward.

Entering the PAYG instalment system can be discomforting, if you are not expecting it. Instalments are required to be paid four times a year or if you are in the creative industries, two times a year.

The ATO treat PAYG instalments as if they are actual debts, even though they are merely estimates of income tax that should be paid in advance. And they will become actual debts unless they are handled correctly by:

–          verifying the estimate;

–          paying what it is being asked to be paid; or

–          varying the instalment and paying what you believe should be paid

The best way of handling PAYG instalments is by keeping on top of them at an early stage. If you do not pay the first one that is issued to you in a financial year and believe you do not have reason to pay them at all, it will become difficult to vary them later in the financial year.

Please contact us and we can advise you how to manage your PAYG instalments; note that this is a complimentary service in additon to the preparation and lodgement of your tax return.

Medicare Levy Surcharge

If you have taxable income above a certain level, and you do not hold comprehensive private health insurance, the ATO will charge you a medicare levy surcharge.

This policy is to encourage people to take up their own cover to relieve pressure on the public hospital system, however the operation of the medicare levy surcharge also intersects with another important aspect of your return – do you have a spouse?

The meaning of a spouse, for tax purposes, derives from the Marriage Act 1961 and includes de facto relationships. If you say you have a spouse on your return, then for medicare levy surcharge purposes, the relevant threshold is family taxable income rather than single taxable income.

You and your spouse may both have comprehensive private health insurance policies, but not as a family. If you cross the medicare levy surcharge threshold, this may cause the surcharge to be triggered.

With sophisticated data matching by the ATO, they can now discover that you and your spouse both have singles cover and not family cover and issue amendments to prior year returns.

The ATO can also take away the rebates you have received from your private health insurance provider and issue amendments to earlier returns.

The medicare levy surcharge is calculated on the number of days you do not hold appropriate coverage in a financial year. For that reason, now is an excellent time to look at this issue before the financial year of 2025/26 starts to slip away.

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Artwork image:

Matteo Bernasconi
La Battaglia persa after Leonardo (2025)
Oil on linen
102cm by 102cm

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