The Australia Institute (TAI) has backed Labor’s plan to cap deductions for managing tax affairs at $3,000, claiming the proposal would only impact the very highest income earners and would restore integrity to the tax system:
The Labor party has announced a policy to limit the deduction that can be claimed for managing your tax affairs to $3,000. The complexity of the tax system means that some people are spending large amounts of money on accounting advice to take advantage of tax loopholes to significantly reduce their taxable income. They can then reduce their disposable income further by deducting the cost of this advice. Extreme examples of this have emerged where people earning considerable amounts of money are claiming more than a million dollars for the management of their tax affairs…
About 47% of those submitting a tax return claim a deduction for expenses incurred in managing their tax affairs. While the average (mean) amount that people deducted was $378 the median was much lower at just $165. A large difference between the average and median indicates that a small minority are claiming considerably larger amounts than the average. This minority are dragging up the average…
Using the taxation statistics from 2014-15 (latest figures) we can break down how much people deducted, on average… It shows that people that have a gross income of between $180,001 and $250,000 deducted on average $832 for managing their tax affairs. The average amount deducted then rises to reach $12,657 for people earning more than a million dollars…
High income earners who have managed to reduce their taxable income to below the tax free threshold deduct even more for managing their tax affairs. These high income earners have found deductions that are large enough that they do not pay tax.
Figure 2 shows the average deductions for managing tax affairs for those with large gross incomes who paid no tax…
If we look at the top 50% of tax payers by gross income we see that people in most income brackets deduct very little for managing their tax affairs. It is only those on very high incomes that claim considerable amounts.
This graph shows that only those on very high incomes are likely to be negatively affected by restricting deductions for managing tax affairs to $3,000…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
