Australia Consults On Standard Deduction

by Mary Swire, Tax-News.com, Hong Kong

30 September 2011

Exposure draft legislation has been released for public consultation by the Australian government on proposals to provide individual taxpayers with a standard deduction for work-related expenses and the cost of managing tax affairs.

The exposure draft provides for a standard deduction of AUD500 (USD486) for 2012-13, rising to AUD1,000 for 2013-14 and subsequent years. It will replace deductions for work-related expenses and the cost of managing tax affairs for those taxpayers whose claims are less than the standard deduction. Taxpayers whose claims for these expenses exceed the standard deduction will still be able to claim those deductions.

On release of a discussion paper in March, Bill Shorten, Assistant Treasurer, said: "A standard deduction removes the hassle of a shoebox full of receipts for Australian taxpayers. It simplifies income tax returns for individuals and the Australian Taxation Office."

The government believes that choosing the standard deduction will be a better choice for approximately 4.6m taxpayers in 2012‑13, both financially and in terms of simplicity. It says that in 2013-14 an estimated 6.4m taxpayers are expected to be better off from choosing the standard deduction.

Of those that benefit, around 66% would have a taxable income of less than AUD50,000 in 2012‑13 and around 60% would have a taxable income of less than AUD50,000 in 2013-14.

An initial round on consultation on the proposals in March/April this year prompted submissions from a range of organizations including the Tax Institute, the Institute of Chartered Accountants in Australia and the Association of Taxation and Management Accountants (ATMA).

The ATMA said in its submission that the option should remain for taxpayers who have work expenses greater than the standard deduction to continue to claim those expenses when lodging their tax return under the existing rules, a view that the government appears to have taken on board.

Robert Duncan, President of the ATMA, said: “We are of the view that the starting deduction of AUD500 may not be sufficient to attract taxpayers to take up the offer. According to ATO statistics the average claim for work related deductions in 2007-08 was AUD1,951."

"The United States of America offers a standard tax deduction AUD5,700 (for 2010) for a single person rather than only for work-related expenses and for managing tax affairs. We therefore recommend that government consider a higher amount and the possibility of offering a standard deduction across all deductible categories in the tax return as they do in other countries."

The closing date for submissions on the exposure draft is October 14.

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