By: Steve Burnham
Even though tax reform is more than likely on hiatus for the next three years, it is worthwhile to re:visit that Tax & Super Australia made a submission to the government last year for the “Re:think” tax discussion paper. One aspect of our submission dealt in part with work-related expense deductions, and how this area of tax arrangements could be improved.
Any reforms to tax arrangements must be able to strike the right balance between simplicity and fairness. So the question is, how should the system for work expense deductions be streamlined, with an aim to potentially help reduce compliance costs, but also retain an overall equitability for taxpayers?
To re:cap, the submission (based on member feedback, download it here), suggested that more than 60% of Tax & Super Australia (TSA) members perceived a need to change the work-related expense deduction system. The preferred mechanism for change was to see the introduction of a standard deduction, up to a statutory threshold, that individual taxpayers would be able to claim without the substantiation record keeping hassle.
TSA’s view, supported by a survey of members, was that any direct revenue loss from simplifying the lower end of the work-related expense deductions scale is likely to be substantially offset by compliance cost savings by the ATO.
The level of such a standard deduction however was more difficult to pin down. ATO statistics for the most-complete financial year available at the time of the Re:think research (2013-14) showed that such deductions equated to an average of $2,265 per claimant. ATO records also showed that work-related expenses were the most commonly claimed deductions, and had been growing substantially over recent years.
TSA’s submission made the recommendation that a statutory cap for work-related expense deductions should be at least $2,000.
Since we are now at Tax Time 2016 and individual returns are being lodged (if you are in a refund position, lol) we recently conducted an online poll, asking the question: “For your salary and wage earning clients, what is their average work-related deduction claim?” The results (for the 2015-16 tax year) were:
The predominance of the less-than-$1,000 amount revealed by the member poll results indicates that a standard deduction could be set at a lot less than the old data may have indicated. So are taxpayers not claiming all the entitled allowable deductions, or are employers reimbursing employees more than a few years back?
A previous Labor government had flagged a $500 standard deduction, that would eventually increase to $1,000, should be considered. However the idea never gained traction beyond theoretical status.
The idea of a standard work expense deduction naturally invokes some tension within the tax practitioner community, and is a double-edged sword. On one hand, such a move is viewed as putting at risk revenue from a large cohort of clients who rely on their tax agent to dig out as many eligible work-related deductions as possible given their circumstances.
On the other hand, relieving overworked tax practitioners of the sometimes onerous task of substantiating smaller claims or other various work-related deductions for their clients would free the more ambitious tax agents to pursue value-added matters. For example, that time may be spent on finding more profitable clients, upskilling or identifying opportunities for your clients, just to name a few opportunities. Is it worth getting another $300 deduction and paying your tax agent $300 to do it!
So is the idea of a standard work-related expense deduction a valid, and/or desirable reform? How will such an idea affect your practice? To have your say, please email news@taxandsuperaustralia.com.au. Moderated comments will be posted under this article.
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Take the Tax & Super Australia poll. This month we ask:
Since the tax rate for small businesses reduced to 27.5%, which of the following options (choose one) would your small business clients have been more likely to have actioned?
- Employed more staff
- Bought plant and equipment
- Saved for a rainy day
- Paid down debt
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Source: Tax & Super Australia
