Now that tax time is upon us, there are plenty of online ads promoting “instant” or “same day” tax refunds. While almost everyone could do with a bit of extra cash sooner rather than later, these refunds could end up biting you in the backside down the track.
How an “instant” tax refund works
Only the Australian Tax Office (ATO) can issue tax refunds so the many companies promoting instant refunds are not actually offering you a refund.
An “instant” tax refund is essentially a short term loan. If you are expecting a $2000 refund from the ATO, you could apply for an “instant” refund and recieve about $1600 in cash after fees. The idea is that when you then receive your refund, you will pay it directly back to the company to pay off your debt. If, however, you later get a message from the ATO that your refund has been witheld for any reason (ie. You forgot to declare your Centerlink debt), you will now be in debt to the tax refund business. This means you owe them the $1600 they gave you in cash, additional fees and if you are unable to pay upfront, you will begin to accumulate interest. Because this is a short term loan, it is likely to have a high amount of fees and interest attached to it so you may find yourself significantly out of pocket and in some cases, these loans can lead to financial ruin.
Ask yourself: do you really need the money right now? The majority of tax returns are payed out within 6-10 business days. Putting off having the money now for a little over a week could save you lots of money and stress down the track.
A better alternative would be to get in contact with a tax agent or accountant like BIS Cosgrove and let us fill out your tax return. This ensures you will get as much back from the tax office as possible, plus, the refund will go straight into your bank account.
If you are in need of money quickly, look for alternative ways to borrow – an “instant” tax refund just isn’t worth it.