Have you ever claimed the odd $60 here and $80 there in work-related car expenses? Or perhaps you’ve spent a few hours adding up all those clothing receipts and calculating your uniform cost deductions? Or what about those new pens and staples you’re considering purchasing for your home office – did you intend to claim those as deductions too?
You’re not alone!
Did you know? According to the Sydney Morning Herald, more than 80% of Australia’s 12.8million taxpayers claim deductions when they lodge their returns each year. In FY2012-13, personal taxpayers claimed a total of $31.3billion in deductions, with work-related expenses totalling $19.7billion (See the infographics below for a breakdown).
While Aussie taxpayers, just like you, have been able to claim deductions against their income for more than 100 years, the trend in overclaiming those deductions seems to be on the rise.
Consider this – for 2014-15 tax returns, work-related deductions are estimated to represent about $3.5billion of overclaimed deductions and between $700-800 million in lost tax revenue. And herein lies the problem – of course, the issue isn’t that deductions exist per se, but that they open up the potential for tax avoidance.
Tax avoidance: the breakdown
Tax avoidance schemes range from those advertised to the public to specialist arrangements offered to investors. When it comes to lodging tax returns, the most common tax avoidance schemes you might have come across include:
- Reducing your taxable income
- Increasing your deductions against your income
- Increasing rebates, or
- Avoiding your tax obligations entirely
All of which might sound like they might pass muster. But they’re easily recognised by, and under the scrutiny of, the ATO (not whose watchful gaze you’d want to fall under too often.)
Schemes designed to avoid tax subsequently increase the tax burden on responsible taxpayers and as such, deny funds for the community in its entirety. So how do we stop tax avoidance when it seems like everybody’s doing it?
Tax avoidance: the Government’s fix
According to economist Saul Eslake, Australia’s personal tax system is riddled with holes and an attempt to fix those holes is now underway.
Again according to the Sydney Morning Herald, treasurer Scott Morrison has asked his department to look into a possible universal cap on income tax deductions, to be applied to work-related expenses as well as tax breaks including negative gearing, Capital Gains Tax (CGT) and superannuation concessions – although watch this space. The money saved by reducing millions of taxpayers’ ability to offset billions of dollars of deductions against their taxable income could be used to fund personal tax cuts.
The Australian government’s tax discussion paper suggests, “given the high number of taxpayers who incur a relatively low value of legitimate work related expenses, a ‘standard deduction’ could generate substantial savings.” Of course, you can imagine this might not exactly be a hole-proof fix. Imagine you had receipts for uniform expenses to the value of $115 and the new ‘standard deduction’ is set at $500. That’s $385 in lost revenue at marginal tax rates.
Of course, personal tax cuts and a potential cap on deductions are both topics for greater discussion. While the government hasn’t set anything in stone (or writing) for now, we will do our best to keep you updated.
In the meantime, if there’s anything above that strikes a chord with you, or if you’d like help with your personal tax return, you can always give Kerry a call on 6023 1700, drop us a note or connect with Kerry via LinkedIn.