Tax time: deal or no deal?

Since the federal government announced the first major step towards simplification of Australia’s complex personal income tax return system last week, there has been a lot of talk about how the changes will impact the Australian public.
 
The initiative follows last year’s announcement by the Treasurer that from 1 July 2012, individual taxpayers will be entitled to claim an automatic deduction of $500 (rising to $1000 in the following financial year) for work-related expenses and costs of managing tax affairs.
 
In other words, the government is making a ‘deal or no deal’ offer to taxpayers: claim $500 without needing to keep any receipts, or claim a different amount if you want to maintain documentation to support your claim. From a policy perspective, it’s one of those rare ‘win-win’ scenarios for individual taxpayers and is a good first step towards the simplification of tax compliance.
 
For some tax agents, this sort of simplification would be considered a win as well. Freeing up resources from focussing on straightforward tax returns enables more time to work with clients who have more complex business affairs and therefore require high value-add advice.
 
In order for this simplification idea to be effective, however, there needs to be a significant take-up of the offer. The question is whether or not $500 (or even $1000) will be enough to entice people to take the deal. Data suggests that individuals claim an average of around $2,000 every year for work-related expenses. When budget conditions allow, I think the government will need to make the offer much more attractive in order to ensure a significant take-up across the population.
 
While the standard deduction is a good first step, I predict that in the next few years the Australian Tax Office (ATO) will be capable of taking a giant leap forward around simplifying compliance further. For taxpayers with straightforward affairs, I would like to see a one-page tax return from the ATO, pre-populated with information already received from third parties, (such as employers, banks and companies). Taxpayers would simply sign the form, send it back, and wait for their refund.
 
Don’t think that this sort of idea is a distant dream – simpler tax returns are just around the corner.

Find out more about this issue from Assistant Treasurer Bill Shorten at the Institute's National Tax Conference in April.