Tax Refund Lower Than Expected? These Common Reasons

Opening your Notice of Assessment expecting a solid refund and getting a number well below what you calculated - is one of the most common frustrations Australian taxpayers face each year. If your 2026 refund came in lower than you anticipated, you're not alone, and in most cases, there's a clear explanation.

Here's what's actually driving smaller refunds this year, and what you can do about it.

Tax Refund Lower Than Expected? These Common Reasons

First, What Determines Your Refund Amount?

Your tax refund isn't a fixed number the ATO decides to give you - it's simply the difference between how much tax you already paid throughout the year and how much tax you actually owe based on your final income and circumstances.

Four things drive this calculation:

• Income - everything you earned between 1 July and 30 June

• Deductions - eligible work-related and other expenses that reduce your taxable income

• PAYG tax withheld - tax already withheld from your wages or other payments

• Tax offsets - amounts that directly reduce the tax you owe

If any of these shift from last year - even slightly - your refund can change, even if your income "feels" about the same.

7 Common Reasons Your Refund Dropped

1. Less tax was withheld from your pay

If your employer withheld less PAYG tax than usual because of a pay rise without updated withholding, a second job, or a change in your tax-free threshold claim. You'll have paid less tax upfront, which means less to refund at the end.

2. You had income from a side hustle or second job

Freelance work, Uber/delivery driving, online selling, or a second part-time job all count as assessable income. If tax wasn't withheld on this extra income during the year, it gets added to your total tax bill at lodgement time - shrinking or even eliminating your refund.

3. You claimed fewer deductions than last year

Maybe you worked from the office more often this year instead of home, didn't need to buy new tools or uniforms, or simply didn't keep receipts. Fewer eligible deductions means less reduction to your taxable income.

4. You sold shares, crypto, or an investment property

Any capital gain from selling an asset gets added to your taxable income for the year. Even a modest gain on shares or crypto can be enough to push you into a higher tax bracket or reduce an expected refund.

5. Your income crossed into a higher tax bracket

A pay rise, bonus, or extra hours can push part of your income into a higher marginal tax bracket. Only the income above that threshold is taxed at the higher rate, but if your employer's withholding didn't fully account for the change, you may end up owing more at tax time than expected.

6. You have a HECS/HELP debt and your income increased

If you have a HECS or HELP debt, compulsory repayments apply once your income passes the minimum threshold ($67,000 for the 2025-26 year). From 2025-26, repayments are calculated on a marginal basis - you only pay a percentage on the income above the threshold, not your entire income. This makes the system fairer than the old rules, but a meaningful pay rise can still increase your compulsory repayment and reduce your refund compared to last year. Something our tax accountants can help you plan around ahead of time.

7. You owe money to a government agency

If you have outstanding Centrelink debts, child support obligations, or other government debts, the ATO can offset part or all of your refund against them automatically - often without much warning beforehand.

How to Check What Changed Before You Panic

Before assuming something went wrong, it's worth doing a quick check yourself:

1. Log into myGov and compare your Notice of Assessment year-on-year - look specifically at your gross income, total deductions, and tax withheld figures side by side.

   
   

2. Check your income statement for the year against your payslips to confirm the right amount was withheld. (Most employers now report through Single Touch Payroll, so this appears in myGov as an income statement rather than a paper PAYG summary.)

   
   

3. Review the ATO's pre-fill data for any income sources you may have forgotten about (interest, dividends, side-platform payments).

   
   

4. Look for an ATO offset notice - if part of your refund went to a debt, the ATO will usually issue a separate letter explaining it.

If the numbers still don't add up after this, that's when it's worth having a registered tax agent take a proper look.

When It's Worth Getting a Professional to Review Your Return

A lower refund isn't always a mistake but sometimes it is. It's worth getting expert eyes on your return if:

• The drop is significant and you can't identify a clear reason

• You had capital gains, foreign income, or crypto transactions this year

• You're unsure whether you claimed all eligible deductions, including working-from-home costs

• You want someone to review your return before lodging, rather than after

A second review can sometimes uncover deductions you missed or confirm that everything is correct so you can lodge with confidence.

Need a Second Opinion on Your Tax Return?

At Gordon QC Du & Associates, our registered tax agents review your income, deductions, and records line by line before anything is lodged so there are no surprises at assessment time. Based in Mirrabooka, we help individuals and small business owners across Perth get their tax return right the first time.

Disclaimer: This post contains general information only and does not constitute specific tax or financial advice. Please consult a registered tax agent regarding your specific circumstances.

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