The days of spending hours poring through work expenses when filing a tax return could be over, if a new recommendation from the tax watchdog is put into action.
The Inspector-General of Taxation (IGT) has released a new review, finding that a standard deduction for work-related expenses should be considered by the Australian Taxation Office (ATO) and government as it would mean millions of Australians would no longer need to file tax returns.
“The IGT recommends the Government consider reform of the work-related expense deduction regime, having regard to prior reviews in this area, including the possibility of introducing standard deductions with a view to eliminating the need for most individuals to lodge income tax returns,” the report read.
A standard workplace deduction would mean workers would be eligible for a set tax refund.
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However, responding to the recommendation, the government said the Australian tax system is formed so that those who do incur legitimate costs during their work have equal tax treatment to those who don’t.
“A long-standing principle of the Australian tax system is to tax an individual on their income after accounting for legitimate costs incurred in earning that income,” the government’s official response read.
“Permitting deductions is intended to equalise the treatment between those who incur costs in producing their income and those who do not.”
“From an administration perspective, the ATO have taken steps to make compliance easier for individuals with work related expenses, such as the ATO’s myDeductions feature in the ATO app which can be uploaded to pre-fill the individual tax return.”
The ATO’s official response didn’t make note of the recommendation. However, the ATO has previously taken a strident approach towards workers claiming a “standard deduction”.
“Know what you can legitimately claim. There are three golden rules for work-related expenses. You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it,” ATO assistant commissioner Kath Anderson said during tax season last year.
“This tax time we will be paying close attention … to people who are claiming standard deductions for expenses they never paid for.”
Wait, what do people think is a standard deduction?
Workers claiming more than $150 in laundry, vehicle or other work expenses need to include written evidence of their expenses, leading many Australians to claim $150 in work-related expenses.
“Now some people might say $150 is not much and the ATO shouldn’t worry about it,” Anderson said.
“But while it is not much individually, when you multiply that by millions of taxpayers, it adds up to a lot. And besides, no matter how small, it’s not ok to expect other Australians to pay for your dodgy claims.”
It’s not the first time the idea of a standard deduction has been raised, with both the Australian Labor and Liberal parties toying with it in the past.
However, attempts to legislate or even introduce legislation have been stymied by the cost of such a scheme.
According to the 2017 Standing Committee on Economics, if a standard overall deduction of $500 was introduced, that would come at an annual cost of $2.3 billion.
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