$1,000 tax refund advances from H&R Block, Beforepay stoke consumer advocate concerns

As the cost of living crunch continues, accountancy giant H&R Block and pay advance provider Beforepay are offering customers advance payments of up to $1,000 from their income tax return.

While the service promises users early access to their expected tax return, consumer advocates say users should seriously consider their options before signing up.

H&R Block and Beforepay’s tax return advance system is open to applicants for the 2022-2023 tax year, following its pilot launch in 2022.

Under the scheme, eligible applicants who process their income tax return through H&R Block can access up to 50% of their estimated tax refund, capped at $1,000.

Users will be charged a 5% fee, or a maximum of $50, for what H&R Block describes as an upfront loan.

Repayments will be automatically deducted from the individual’s full tax refund once it is released by the Australian Taxation Office (ATO).

While H&R Block is confident in its ability to assess how much its clients are likely to receive as a tax refund, users will need to repay any shortfall between the advance payment and the final refund amount.

Fees and repayments are not the only drawcard for H&R Block, either, as signing up for the advance also guarantees payment for processing the income tax return itself.

Advances on expected tax refunds are relatively common in the business space, with an entire industry of boutique lenders offering advances on expected research and development tax refunds.

Income tax advances are also commonplace in jurisdictions like the United States, where H&R Block offers customers up to US$3,500 ahead of their full refund.

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Yet income tax return advances are somewhat less common in the Australian market, and have been met with suspicion from consumer advocacy groups concerned about their potential consequences.

The Consumer Action Law Centre (CALC) says the service differs considerably from business-focused tax advances, given the way Beforepay promotes its business to cash-strapped users.

“We’re concerned that Beforepay says this product is suitable for people who need to pay rent or a medical expense, as well as discretionary needs like shopping,” Rose Bruce-Smith, CALC policy officer, told SmartCompany.

And unlike pay advances based on predictable fortnightly or monthly wages, the difference between the expected tax return and the final amount could put users in tight financial positions.

Bruce-Smith said those considering a tax return advance this tax time should first consider the alternatives.

“There are many ways that people can seek help for financial difficulties that won’t incur charges,” she said.

“They can talk to their lender about a hardship variation on their mortgage or car loan, apply for a utility relief grant for their energy bills,” or apply for a no-interest loan from applicable charities.

Centrelink can offer payment advances in certain circumstances, and Bruce-Smith said taxpayers can even ask the ATO to prioritise speedy tax returns in extenuating circumstances.

“Anyone struggling to manage their debts or meet their everyday living expenses should call the National Debt Helpline on 1800 007 007 or contact a local financial counsellor for free, confidential assistance,” she added.

SmartCompany has contacted H&R Block for comment.

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