Yahoo FinanceShould Australia ditch tax returns? These countries have done it
The financial year has just closed – so many Australians are busy doing their taxes hoping to score a nice refund.
But if you're like most, it's not a fun job.
Finding old receipts, calculating sums, working out what's a legal deduction and what's not – there's a lot of laborious paperwork.
Is it all worth it? One expert doesn't think so.
"It’s likely that many of the people who have filed already have very simple returns: they are employees with little or no deductions, with most of their information already pre-filled by the ATO," said UNSW school of taxation lecturer Kathrin Bain.
"For those taxpayers, doing their own return may be as simple as checking the ATO pre-filled figures, calculating a few minor deductions and then submitting. However, a number of these taxpayers will still visit an accountant, at several hundred dollars a year."
"The tax return just seems like an expensive drag on the economy."
Requiring taxpayers to skip tax returns is a concept that's already operational in many countries around the world.
In some smaller countries like Denmark and Sweden, according to the Tax Policy Center, the tax agency fills in the return on your behalf.
But here are three nations that are more comparable to Australia with different ways of allowing people to skip tax returns:
United Kingdom
Britain uses a "cumulative" withholding system, meaning the amount of tax taken out of each payslip is aimed to be as accurate as possible to the actual amount the citizen owes.
This requires the tax system to be simplified so the calculation can be done easily on the fly.
One way the UK did this is to treat individuals rather than the family as the unit of taxation. According to the Tax Policy Center, Britain also has 64 per cent of taxpayers paying the same "basic" tax rate, which also helps simplify the calculations.
The system is successful, with roughly 90 per cent of eligible taxpayers not having to file a return in 2014.
Japan
Japan uses a "final" withholding system, meaning the amount of tax taken out on the final payslip of the financial year tries to make up for any inaccuracies accumulated over the year.
"Thanks to the withholding tax system, most employees in Japan do not need to file a tax return," stated the Japan-Guide.com website.
Although the figures are old, the Tax Policy Center cites the 63 per cent of people that didn't need to file a return in 1990 as still indicative of current rates.
New Zealand
New Zealand made tax returns optional 10 years ago, according to Bain, but the trade-off was that work-related deductions were scrapped.
Bain says this would not go down well with Australians, who are addicted to claiming a refund.
"It’s part of the culture. And indeed justified – if you spend money on something for work you should claim it back."
How could Australia get rid of tax returns?
A possible compromise between the Kiwi system that could work in Australia is to have a "default" amount of deduction. This is what happens in the UK.
This could put us on the path to a "no return" world, without making Australian taxpayers paranoid they are missing out on eligible deductions.
"Eventually, if claiming the standard deduction became the norm, this could lead to an eventual phasing out of tax returns for many taxpayers, like has happened in the UK. Most employees there never file a return, and essentially just accept the tax office’s calculation."
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