We heard before Christmas that voluntary tax returns won’t be far away as it is one of the key recommendations of the much anticipated Henry Tax Review.
It is proposed that taxpayers will receive a one page summary from the ATO which will show your income together with a standard deduction for necessary work expenses. If you are happy with the ATO’s calculation then you simply tick a box and get your refund. Sounds good in theory for those with basic tax returns and don’t want the hassle of filling out a return.
But does anyone seriously trust that the taxman will look after us? Do you really think the ATO will be Father Christmas when granting refunds?
Of course not.
Just consider the taxpayers who spend a lot of money for work related expenses such as car, study, home office, internet, phone, subscriptions and conferences. They will miss out if they simply accept the standard deduction. We don’t even know what the “standard deduction” is exactly going to be anyway as Dr Henry has hinted it will be based on your income and occupation.
So, it is likely to be based on an average for a particular occupation. Which begs the question: which occupation would have the highest work related expenses claim? I would guess someone in a sales and marketing role with a car allowance who uses their own car to see clientele. So why don’t we all become sales and marketing people and get a big deduction as well?
And remember, an average is just that, an average … people who spend more than the average will miss out whilst those under the average will be happy. Don’t shortchange yourself simply by being lazy as it could cost you thousands.
And what happens with inflation? Does the “standard deduction” increase for inflation? Or does it stay at the same level like a lot of other standard tax figures (eg $300 no receipts figure) have been over the years?
So will accountants lose work as a result of this? Basic preparers such as ITP and H & R Block will lose out but they have lost over 2.2 million in business in the past decade with the introduction of the Tax Pack and E-Tax. It is very unlikely that other qualified accountants will suffer. If a tax return is complex then you will still need help with an accountant – so those returns with business income, rental property or capital gains you won’t get any benefit from the proposed change.
In fact I think my business will make a lot of money by charging a fee if we can find discrepancies in the taxman’s calculations. Perhaps our slogan will be … “We will do your tax for free if we can’t get you back more!”
The last three years the ATO have been trialing a pre-filling report where information such as salary, interest, dividends and managed fund distributions can be downloaded. This will no doubt form the basis of the proposed one page document. But this information is based on the provision of tax file numbers and also the reporting to the ATO by the respective institution. It takes a good four months to get information that is close to accurate but it rarely is 100 percent accurate. There are missing PAYG Payment Summaries, missing bank accounts, missing shares and the like. I can’t see much improvement in the future.
What do you intend on doing? Will you trust the taxman and accept his verdict or will you still prepare your own tax return as normal?