Title : Time for a standard work expenses tax deduction says watchdog
link : Time for a standard work expenses tax deduction says watchdog
Time for a standard work expenses tax deduction says watchdog
A standard deduction for work-related expenses should be examined with a view to eradicating the need for millions of Australians to lodge tax returns, the nation's tax watchdog has recommended.
Key points:
- A review by the tax watchdog into the future of the tax profession suggests a standard tax deduction could make things simple
- The ATO had said its random audits were revealing higher instances of overclaiming and incorrect claims among tax professionals
- The review recommends the ATO review its arrangements for identifying and responding to cyber security risks
The Inspector-General of Taxation's (IGT) review into the Future of the Tax Profession said such a move would make it easier for millions of Australians who claim billions of dollars in work-related expense deductions each year.
ATO Taxation Statistics show that in 2016-17 there were more than 8.84 million people claiming $21.98 billion in work-related expense deductions.
The IGT has also raised concerns that the Australian Taxation Office's current online tools aimed at nudging taxpayers to amend their returns if they are out of sync with their nearest neighbour, could be possibly resulting in people under-claiming on their tax returns.
Why a standard deduction has not been introduced
Both major parties have considered the idea of a standard tax deduction in the past, but it has never been legislated due to the high cost.
Following the 2010 Henry tax review recommendation that it be considered, former treasurer Wayne Swan announced that the Rudd Government would grant a standard tax deduction and this would end in a bigger tax return for 6.4 million Australians. But the proposed legislation was never introduced into Parliament.
Then, when Scott Morrison was Treasurer, he asked a parliamentary inquiry to look into the possibility of introducing a standard deduction for all taxpayers or doing away with certain deductions in favour of lower personal tax rates.
But the 2017 Standing Committee on Economics report of its Inquiry into Tax Deductibility found the cost of such a scheme would be significant.
It found that if a standard deduction of $500 was granted, there would be an additional cost of $2.3 billion, and if the standard deduction was increased to $1,000, then the additional cost would be $4.6 billion.
Acting inspector-general of taxation Andrew McLoughlin said, while there was presently little appetite for change, a change should still be considered as there could be compliance cost savings for individuals and reduced administrative costs for the ATO. He called for a cost-benefit analysis to progress the debate.
In his response to the IGT review, Assistant Treasurer Stuart Robert said a long-standing principle of the Australian tax system was to tax an individual on their income "after accounting for legitimate costs incurred in earning that income".
But he but noted the ATO had taken steps to make compliance easier for individuals with work-related expenses, such the myDeductions app.
Relationship between ATO and tax agents examined
The Inspector-General's report also highlighted concerns from some tax advisers regarding claims by tax commissioner Chris Jordan that its random audits were revealing instances of overclaiming and incorrect claims.
Mr Jordan caused controversy among the tax community last year when in speech to the Tax Institute, he said some tax agents were "deliberately scamming or cheating the system" when it came to work-related expense deductions.
Mr Jordan said that the ATO's random audits had shown over-claims were "actually worse in agent prepared returns".
But the IGT said "the absence of the detailed underlying data does not facilitate the determination of the extent to which the tax profession may be a contributing factor".
Late in the review process, the ATO informed the IGT that at the time of commissioner's comments, the results of the ATO's enquiry had not been finalised and the commissioner was sharing initial insights.
"It is regrettable that the commissioner's comments were not accordingly caveated," the report said.
The IGT also noted the negative impact Mr Jordan's statements regarding tax agents and work-related expense deductions has had on the "already fragile relationship between the ATO and the tax profession".
"Foremost amongst the concerns that have been raised with the IGT is the absence of robust and detailed underlying data to accompany the commissioner's claims," it said.
In response, the ATO has disagreed with the recommendation that any future messaging regarding concerns it may have with the tax profession be appropriately considered and accompanied by robust and properly tested data.
"The ATO only raises concerns when we have robust and properly tested data," the agency said.
However, the report also called for the Federal Government to consider increasing the range of sanctions that the Tax Practitioners Board — the board that regulates tax advisers — may impose on non-compliant tax professionals, including disciplinary actions.
Concerns tax gap sample size too small
The inspector-general was also concerned that there is a significant difference between the information that the ATO has provided, as part of this review to the IGT, and the information that the ATO has since published as part of its tax gap analysis.
It said the theoretical tax gap for individuals in 2014-15 is $8.7 billion. The ATO examined 858 cases out of a total possible 9.6 million taxpayers to make that claim.
"Some commentators have also suggested that the sample size used in the gap analysis may be too small," the IGT's report said.
"The IGT can appreciate such a view and believes the ATO should also justify the use of such a small sample to bring into question the expertise and ethics of tax practitioners who feel unjustly attacked and their profession brought into disrepute."
Its report said that as more taxpayers opt to use self-service channels, "tax practitioners believe that the risk of under or over compliance will also increase".
There was also risk that the ATO's 'Nearest Neighbour' tool may 'nudge' taxpayers away from claiming their full entitlements.
"The IGT believes that the ATO should undertake research to determine whether this is the case, particularly where there is the potential to use the prompts to effectively 'test' threshold limits before submitting the returns," it said.
"As an extension, the tool does not presently operate in the reverse direction, that is, alerting taxpayers when they have under-claimed entitlements to which they may be legitimately entitled."
It also said problems with the ATO's Tax Agent Portal caused the profession "significant disruption" and, although the agency had committed to migrate to a more stable online platform within two years, "that does not appear to have occurred".
"There would be benefit in the ATO re-assessing its work in this regard to provide tax professionals with an updated timeframe for completion of the work," it said.
ATO needs to be bound by commercial standards
The ATO has previously said it will not be bound by commercial standards when it comes to its IT systems.
But the IGT was of the view that the "ATO should align its service standards with those of commercial providers, including a dedicated scheme for compensation where outages or system failures result in loss for the users".
The IGT's report also raised concerns about the way the ATO has responded to cyber risks, given a recent spate of high-profile data breaches in Australia and overseas.
"The ATO holds one of the largest repositories of sensitive personal and financial information in Australia. Accordingly, it is required to have extensive controls to guard against cyber security attacks and data breaches," it said.
It referred to an ANAO report that had there was "insufficient protection" against cyber attacks from external sources.
"While the ATO has publicly stated that it is bolstering the resilience of its IT systems following the systems outages in 2016 and 2017, there is no public information as to whether it had attained the cyber resilient status," the IGT report said.
It made recommendations for the ATO to review its arrangements for identifying and responding to cyber security risks, assist tax professionals to develop and maintain their own cyber security risk management and response plans; and broadly communicate and inform the public about the measures it has implemented to mitigate risks of cyberattacks and data breaches.
The ATO disagreed saying it already had practices in place and, while it would continue to provide information and guidance to tax professionals, "ultimate responsibility sits with the practitioner to ensure they have sufficient safeguards in their own practice systems".
The Inspector-General made nine recommendations, composed of 28 parts, to the Government, the ATO and the Tax Practitioners Board. Of the 19 parts of the recommendations directed to the ATO, eight have been disagreed with.
Thus Article Time for a standard work expenses tax deduction says watchdog
You are now reading the article Time for a standard work expenses tax deduction says watchdog with the link address https://coneknews.blogspot.com/2019/04/time-for-standard-work-expenses-tax.html
0 Response to "Time for a standard work expenses tax deduction says watchdog"
Post a Comment