29/01/2016 10:40:29 PM
Michael Croker -
The Standing Committee on Economics will soon consider whether Australia’s tax rules for deducting work-related expenses should be changed to reflect the approach in other countries, such as the United Kingdom and New Zealand.
Australian workers are accustomed to receiving an annual tax refund of PAYG tax, with the refund boosted by deductions for things not reimbursed by their employer, such as:
We’ve listed the many arguments for and against change in our submission, and concluded that there is merit in removing deduction entitlements in exchange for lower rates of personal taxation, particularly those tax rate bands impacting most Australians. These personal tax rate cuts, coupled with much simpler rules for personal tax compliance, would need to be sufficient to wean Australians off the sense of entitlement that now exists towards work deductions and tax refunds.
But this leads to issues surrounding the interaction between the personal tax system, employer provided benefits falling within the FBT regime and salary packaging opportunities.
Our submission also notes that work deductions are part of a bigger tax reform picture.
The UK and New Zealand have efficient payroll coding systems which usually result in the correct amount of income tax being withheld by the employer, so no annual tax return is necessary. This outcome is helped by simplified tax rules for other things like interest income and charitable donations. For example, the UK doesn’t try and tax everything: they have a tax free Individual Savings Account regime and an annual CGT exempt amount of £11,100.
In the case of New Zealand, the decision to abolish work deductions in the late 1980’s was part of a “broad-base, low rate” approach to tax reform driven by the Labour Government under the stewardship of David Lange and Roger Douglas, and passed by a unicameral Parliament.
This discussion also flows into workplace bargaining arrangements, and needs to acknowledge the fact that some employers expect their employees to foot the bill for equipment, protective clothing etc used in the workplace.
Michael Croker (Member since: 6/07/2012 3:38:18 AM)
As Tax Australia Leader at Chartered Accountants Australia and New Zealand I am responsible for leading our taxation policy and advocacy work with federal and state governments and regulatory bodies. I previously led the team which designs, develops and delivers the tax, superannuation and financial advisory services training program at the Institute of Chartered Accountants Australia.
Prior to that, I was responsible for the corporate tax law syllabus within PwC Australia. I have also lectured in post-graduate tax subjects at The University of Sydney.
View Michael Croker 's profile
We have had new clients come from the UK and New Zealand who claim their work related deductions for the first time and receive tax refunds much to their surprise. When asked about their employment costs in their former countries they have said employers make them use their own vehicles, mobile phones, internet, tools etc and do not reimburse them. It's a case of employees paying these costs or no job - the reality is "take it or leave it". So upon receiving their tax refunds after being taxed on their "true incomes" these taxpayers go out and spend their money on the betterment of their families in the real economy. It is not money left to sink into the "black hole" of government. In other words a positive economic effect comes from taxpayers getting back the money they earned!
In regard to the supposed tax cuts well we all know that bracket creep will quickly eliminate these so taxpayers will end up worse off - remember the tax cuts in return for the GST and how they disappeared. For the Institute to rollover to the government's obvious wishes for more money on this issue will not be for the benefit of taxpayers as your blog states or, unbelievably, its practising members who will also lose a revenue stream from preparing salary and wage returns. Maybe the Institute should canvas its practising members about the real effects of so-called reform before it runs off making submissions to the government supposedly on their behalf. Maybe also the Institute should be making submissions to the government about cutting costs or loosening the bureaucratic burden on its professional members and the community instead of rubber stamping whatever the government obviously wants which, it would appear, is to become another basket case economy like the UK!
Robert Morrison - Thank you for your comments, I agree with everything you say.
And, I must question the reasoning of the Standing Committee on Economics who appear to think that, because the UK and NZ, amongs others, have chosen to deny workers their entitlement to deductions for work related expenses, Australia should do the same. What's the logic in that? This proposal needs to be seen for what it is - a Tax Grab from the workers who create the wealth upon which the prosperity of our country depends.
Come on, Institute, support your members and the clients of your members and resist this revenue-raising move by Government.
So if UK and New Zealand pollies stick their heads in a bucket of offal ours should too????
Because other countries etc do things does not make it right for us.
Expert, X is the unknown quantity, and spurt is a drip under pressure!!!
I was both astounded and appalled to read the submission paper presented under the CA banner. It has to be the weakest piece of analysis that I have read in years.
The carrot is the empheral promise of lower income taxes forever. The justifications for the recommended change is simplification and removal of the sense of entitlement that exists around work related expenditure claims. The answer to both justifications is simple.
1. The system as it stands is simple for those who don't have valid work related expenses to claim. ie. Most employees.
2. It is a fundamental principal of our taxation system that if I spend $1 to receive $2 then I pay tax on the net amount earned. That is not an entitlement and to characterise it as such is misleading. Simple.
If the ATO cannot manage its compliance job then that is a problem with the adminstration, not with the legislation. However, I would suggest that the ATO actually does a pretty good job of meeting its compliance duty in relation to work related expenditure claims.
Final point. This report does not take into account the fact that Australia's employment legislation, with the ATO's help, is forcing many genuine contractors into the employee net. Denying those "employee/contractors" the ability to claim their work related expenses is just one more nail in the coffin of enterprise in Australia.
I totally reject this submission. It does not represent my views on the direction that tax reform needs to take.
I fully support the comments of Robert Morrison regarding work related deductions. The "thought leaders" at the Institute should be consulting the grassroots membership before taking a position on such proposals.
to post a comment
© Copyright The Institute of Chartered Accountants in Australia 2010. All rights reserved.