Australian Accountants Welcome Simplification

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

09 March 2011

The Institute of Chartered Accountants in Australia has said that the government’s commitment to simplify the personal tax system is a turning point for the country’s tax reform agenda, but warned that a starting deduction of AUD500 may not be enough to entice taxpayers to tick the box and take up the offer.

The Institute’s Tax Counsel, Yasser El-Ansary, said that more than 70% of Australians – more than double the Organization for Economic Cooperation and Development average – visit a tax agent every year to help them with their personal tax compliance obligations.

“This is an indictment on the complexity of our tax system. A standard deduction has the potential to simplify tax returns for millions of Australians. The trick is finding the tipping point that will see the majority of people accept the incentive,” he said.

An investigation by the Australian Daily Telegraph has revealed that the number of Australians failing to lodge a tax return is about four million, leading to an unofficial "cash economy" that could run into tens of billions of dollars. According to the report about 700,000 taxpayers made special repayment plans with the ATO in 2009-10, an increase of 32% in four years, although the tax office expects 260,000 small business owners to default on these repayment deals.

The Institute of Chartered Accountants’ comments follow the Assistant Treasurer’s release of the discussion paper, Making Tax Time Simpler: Standard Deduction for the Cost of Work-Related Expenses and the Cost of Managing Tax Affairs, which outlines the detail of measures announced in the 2010-2011 federal budget package.

The budget announcement included a proposal that would allow taxpayers to opt for a standard AUD500 tax deduction from July 1, 2012, instead of having to itemize work-related expenses. Under the proposal, the standard deduction would increase to AUD1,000 from July 1, 2013.

The Institute has long held the view that personal tax returns should be simplified for taxpayers with straightforward compliance obligations. The idea has become more feasible in recent years due to the advances in data-matching technology and information sharing by banks, the ATO and other government agencies.

“Longer term, a simplified personal tax system not only eases the burden on individual taxpayers, but it also offers tax agents the opportunity to shift their focus towards providing clients high-value advice on complex business issues,” Mr El-Ansary said. He said another option for streamlining personal tax returns is to consider a standard deduction that varies on the basis of an individual’s taxable income.

Simplified tax compliance arrangements have been successful in other jurisdictions, such as the US, where the standard deductions peak at around USD11,000.

Mr El-Ansary said he was pleased the government was adopting one of Dr Ken Henry’s recommendations from the Australia’s Future Tax System review in full.

“This is a positive step in the context of broader tax reform and we hope to see more of these types of initiatives raised and debated in the lead-up to the government’s national tax forum, expected to be held before the end of June 2011,” he said.

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