At tax time you often see ads for a “same day tax refund” or “instant tax refund”. It might sound appealing to get your tax refund today…
But the truth is, a “same day tax refund” is not really what the name suggests.
Can I Get my Tax Refund Today?
Most Australians wait only 6-10 business days for their ATO tax refund. If you use a tax agent, like the majority of Australians, the agent sends the money straight into your bank account.
Instant Tax Refunds are Often a Rip-Off – Here’s Why
If you need your tax refund in a big hurry, and you choose an “instant tax refund”, you could find yourself in some financial strife. Because really,
…there’s no such thing as an instant tax refund.
Tax refunds are issued by the ATO. When you sign a “same day tax refund” contract, you don’t actually get your tax refund instantly. Typically, it’s a high interest, short-term loan, often with high fees and costly late charges, hidden inside a complicated legal contract.
Pay Close Attention to the Numbers
Instant tax refund companies can take as much as 20% or more out of your refund, right from the start. They may also charge you a combination of fees and interest that take an even bigger chunk of your money. On top of that, their basic tax return fees are often higher than you’d pay at most trustworthy, popular tax agent services.
Making it worse, if the ATO delays your refund – a delay that’s out of your control – you could pay additional interest and fees. In some cases, you could wind up paying more than your total tax refund – straight back to that “instant refund” tax loan agent.
If you think that’s risky, it can get even worse!
If the ATO doesn’t give you the refund you first expected, then you owe your entire “instant refund” plus all the fees and interest to the tax loan agent you went through. You’ll have to pay it back to the company immediately, or else those high interest rates and penalty fees start to kick in. This can get ugly for you, especially if you can’t afford to pay it back right away. If you need time to pay it back, you might discover your instant tax refund costs you more than your entire ATO tax refund.
Instant tax refund online example:
“Phillip wants a mountain bike”
Phillip is expecting a $1400 tax refund from the ATO. The mountain bike he wants to buy is on sale, so he wants the cash today.
Phillip decides to use a same-day tax refund service. At first, the fees don’t look too scary…
- 10% of the tax refund (a realistic example)
- $120 basic tax return fee plus a typical $30 fee for deducting the fees later. (That’s common, but it can go much higher).
Philip signs the agreement and walks away with a $1000 cash “same day tax refund”. (Note: the loan is usually quite a bit lower than your total estimated tax refund).
At this point, Phillip only thought about the basic $120 fee, but in fact the minimum Phillip will pay in fees is $290, IF he repays the loan on time. That is a very high fee for a basic tax return, and there might be more fees coming Phillip’s way very soon…
Phillip gets his $1000 cash, gets his mountain bike and he has not paid any fees out of pocket – yet.
Phillip hits some tax turbulence:
Later, Phillip got a message from the ATO: His $1400 tax refund was withheld. He forgot to declare his Centrelink debt when he did his tax return (a common issue). Phillip’s tax refund went straight from the ATO to Centrelink which means he won’t receive a tax refund at all.
But didn’t Phillip already get a tax refund?
Actually, Phillip only received a loan on the assumption he would receive a refund.
Now, Phillip owes money back to the tax refund business for the loan. How much does he owe?
- $1000 for the “instant refund” loan
- plus $290 in fees
- that makes the total $1290
Phillip doesn’t have $1290 in the bank. He can only afford to repay $100 a month. What happens now?
The fine print:
The fine print on Phillip’s instant tax refund contract says he can definitely make monthly repayments, but he’ll have to pay an additional 4% of his original loan, per month.
On the surface, that all sounds okay, right? Unfortunately, the tax loan agent charges an extra 4% of the original loan each month, which equals $40, as well as a $12 late fee for not paying his original loan back by the due date.
Phillip makes his $100 monthly payments. Each month, $52 gets sucked up by interest and fees. Only $48 goes toward his loan which means Phillip’s $100 monthly payments will continue for 27 months.
By the end of it, Phillip has to pay back his $1000 loan PLUS another $1694 in fees and interest. $2694 in total!
This fictional example is not a worst-case example. A worse case could spell financial ruin for a taxpayer. That might involve:
- a bigger loan,
- a person who could only afford a much smaller repayment,
- a same-day refund agent that charges even higher fees – yes, they are out there, waiting to trap people who don’t check the fine print.
The verdict on same day tax refunds
As we said before, most Australians receive their tax refund within 6–10 business days after submitting their return.
If you are considering the risk, ask yourself: “Can I wait a fortnight like everyone else?”
If you need money instantly, there are safer ways to borrow. Based on our review of the fees charged by same-day-refund companies, it appears many of them are a rip-off. And they’re a rip-off that could cost you money month after month, for a long time. Even credit cards, which have terrible fees and interest rates, might be cheaper and safer than a same-day tax refund.
A good tax agent service can often save you money and boost your refund.
A normal, popular online tax agent like Etax Accountants is different to a same-day “instant tax refund” agent. The fees are reasonable, the service is professional, and there’s no chance you’ll be charged interest fees or late charges.
A same-day refund agent will, in most cases, cost you more than it’s worth. Don’t risk it all for a same-day tax refund loan.
The Safer Way to do Your Tax Return
Most Australians use a tax agent to complete their tax return. Get the confidence of knowing that your tax return was done right by a qualified accountant, who always want to get you the best outcome possible. Plus save time with our convenient online system.
You can do your tax return quickly, easily, safely, and for a low fee by visiting an online tax agent service such as Etax.com.au.
At Etax, our online tax return fees start at only $82.49. If you’d prefer your fee to be taken from your tax refund later, our fee from refund service is just $27.50 extra. You will never be charged interest at Etax.com.au – click here to learn more about low fees at Etax. And you get accountants working on your side: your tax return is reviewed by our tax accountants to make sure that everything is correct, and that you’ve claimed all the deductions you’re entitled to.
After your return is lodged at the ATO, you can generally expect to receive your refund from the ATO in about 10 days. Not only will you avoid the staggering fees of a same-day tax return service – you will hopefully get more money in your refund. And, you’ll enjoy peace of mind knowing your return was done properly.
