Why Do I Owe Money to the ATO?

May 28, 2024
5
minutes to read
by
Justin Bohlmann
Table of Contents

Suppose you've found yourself with a tax bill and wondering why you owe money to the Australian Taxation Office (ATO); fret not. In this blog post, we'll dive into the reasons behind your tax bill, the calculation process, and the essential information you need to help you navigate the payment process smoothly. As a small business owner, getting a tax bill is normal, and we'll explain how to best take care of it.

Why do I owe money to the ATO?

Receiving a tax bill can be a bit unnerving, but it's essential to remember that this occurrence is quite common. Several factors could contribute to owing money to the ATO:

  • Inadequate Withholding: If you run a business but are employed or receive a regular income, your employer must withhold taxes based on your declared Tax File Number (TFN) and the Australian tax rates. However, if your circumstances change or you have additional sources of income, you might need more than these withholdings to cover your total tax liability.
  • Sole Trader or Gig Workers: For individuals operating as sole traders or gig workers, taxes are not withheld from their income at the source. Instead, you are responsible for paying taxes on your profits based on your business activities. You will want to keep money saved throughout the year based on your estimated tax position.
  • Fluctuating Income: Irregular income, such as freelancing or seasonal work, can lead to inconsistent tax payments, possibly resulting in a tax bill during the tax season.
  • Deductions and Expenses: Claiming deductions and expenses to reduce your taxable income can be beneficial. However, if they are miscalculated or not correctly documented, it might lead to a higher tax bill.
Tax Calculator

How is my tax estimate calculated?

Understanding how your tax estimate is calculated as a sole trader is crucial to demystifying your tax bill. The ATO determines your tax liability by considering several factors, such as:

  • Income: Your total income from all sources, including wages, business earnings, investments, and other taxable income, is considered.
  • Deductions: Legitimate deductions, like work-related and business-related costs, are subtracted from your income to arrive at your taxable income.
  • Tax Rates: The Australian tax system is progressive, meaning that as your income increases, so do the applicable tax rates for each income bracket.
  • Medicare Levy: The Medicare Levy is a percentage of your taxable income contributing to Australia's public health system.

The final calculation will yield your tax liability, which may result in a tax refund or bill.

How do I pay the ATO?

Paying your tax bill on time is essential for a business owner. To pay your ATO tax bill:

  1. Access your myGov account: Log in to your myGov account and navigate to the ATO section.
  2. Choose a payment method: You can pay your tax bill using various ways, such as credit card, BPAY, or direct bank transfer.
  3. Set up a payment plan (if needed): If your tax bill is substantial and you cannot pay it all at once, the ATO may offer a payment plan. This allows you to pay in instalments over time, making the process more manageable.

Sometimes, the ATO offers discounts for early payments or incentives for specific tax obligations. Make sure to explore if any apply to you.

Tax return

When is my tax bill due?

For sole traders and gig workers, you will generally have until 31 October, but if you're using a registered tax agent (such as Thriday), you may have an extended deadline to lodge your tax return. However, any tax liability identified should still be paid by the due date.

What are the ATO business hours?

The ATO business hours are from 8:00 am to 6:00 pm, Monday to Friday (local time in Australia). However, it's important to note that government agencies' business hours can vary, and there might be changes or updates occasionally.

How can Thriday assist with small business tax?

Thriday is an all-in-one financial management tool that automates banking, accounting and tax. With Thriday, you can view real-time tax estimates during the year, so you always know exactly where you stand and can avoid any tax bill surprises. Thriday is free to join and includes features such as receipt scanning to ensure you can claim the right deductions for your business.

Thriday makes tax time, relax time

Facing a tax bill might seem daunting, but you can navigate it seamlessly with the right knowledge and tools. Thriday provides an excellent solution to simplify your tax compliance, ensuring accurate accounting and automated expense categorisation and making tax time a breeze for sole traders, gig workers, and anyone with income streams to manage. Remember, proactive tax planning and efficient bookkeeping can go a long way in preventing surprises at tax time. Stay proactive, and with Thriday by your side, you'll be well-prepared to handle your tax obligations confidently. Happy tax filing!

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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