With tax time fast approaching, many Australians feeling the cost-of-living crunch will be looking forward to receiving a tax return.
But the global tax accounting firm H&R Block says you don't have to wait – you can get a tax 'refund' of up to $1000 before you've even filed your return. Except it's not actually a refund; it's a loan that comes with a 5% fee.
Financial counsellors are calling it a misleading tactic that could make matters worse for people in dire financial straits.
It's the second year running that H&R Block has partnered with wage advance business Beforepay, which extends loans against people's forthcoming paychecks for a fee.
For those eligible, H&R Block says you can access a "Tax Refund Advance" of up to $1000 of your tax return early, then pay it back through a deduction from your actual tax return, plus a 5% fee. The fine print on H&R Block's website reveals that this is not "your tax return early", but simply a $1000 loan.
'They should call it what it is'
Deb Shroot, a financial counsellor and sector advocate for Financial Counselling Australia, says the way the Tax Refund Advance product is marketed by H&R Block is misleading.
"You're not getting your tax return early if you do this, it's a loan you are taking out. They should call it what it is," she says.
Shroot says that, for people in financial difficulty, getting every dollar from their tax return is important. While a $50 fee on a $1000 loan might not sound like a lot, it can be significant.
You're not getting your tax return early if you do this, it's a loan you are taking out
Deb Shroot, financial counsellor
"There's also a risk if your tax return, for whatever reason such as a Centrelink debt or a debt from previous tax returns, doesn't cover the full amount of the loan. Then can you afford the repayments that you need to make on that as well?" Shroot says.
Nowhere on the H&R Block webpage promoting the product does it say what will happen if your tax return doesn't cover the full amount of the loan and what the repayment conditions or late fees would be.
We asked H&R Block what would happen in these circumstances but didn't receive a response.
Conflict of interest
We asked the Tax Practitioners Board (TPB) for its view on the potential conflicts of interest in the H&R Block partnership with Beforepay but were told the organisation doesn't comment on individual tax preparation businesses.
But the TPB did say that practitioners had obligations under the Code of Professional Conduct which included upholding ethical standards and providing advice and services only in areas they are registered and competent to provide.
"They must not provide advice on personal loans or other financial products without appropriate skills and registration to provide financial advice services," a TPB spokesperson says, adding that practitioners must also take steps to manage conflicts of interest and disclose any referral fees they receive.
The spokesperson also says that where expected tax refunds are paid to clients in advance as loans, clients must be fully informed of the risks involved and the conditions of any loan contract.
We asked H&R Block whether they received a commission for promoting Beforepay to clients, but they did not respond.
Loopholes in the legislation
Despite new government regulations on buy now, pay later products that came into effect last year, wage advance businesses like Beforepay are exempt if they don't charge fees of over 5%.
Consumer Action Law Centre policy officer Rose Bruce-Smith says the loophole is disappointing and one they would like to see closed in the next term of parliament.
It's definitely targeting people who are likely to experience financial difficulty already
Rose Bruce-Smith, Consumer Action Law Centre
"Our financial counselors on the National Debt Helpline are starting to report that they're seeing wage advance present as often as buy now, pay later, which is really quite an increase," she says.
"It's definitely targeting people who are likely to experience financial difficulty already. Generally what we see is that the wage advance will be one of many things that they are struggling to pay back," she adds.
Bruce-Smith says that for people in financial hardship, another loan often isn't the best option and financial hardship assistance with bills and other supports are usually available.
"If they have a need for money now, there are options. We shouldn't be encouraging them to borrow against themselves down the line and get into further financial difficulty," she says.
If you are experiencing financial hardship, you can call the National Debt Helpline on 1800 007 007 for free, confidential and independent information and advice.
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